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September 24, 2008

IT Budgets, But Not Services, Suffering

Applications and infrastructure outsourcing is proving a stable element in an otherwise tough enterprise information technology environment this year, and points up the value of services-based businesses. Embarq, in fact, now outsources all of its optical splicing to Corning and management of its network operations center to Nokia Siemens (News - Alert) Networks.

Sprint, for its part, has decided ownership of cell towers confers no strategic advantage and is selling sites and leasing space on the towers. Other wireless operators in Europe are sharing the cost of new towers and radio transmission assets. Some global carriers are outsourcing their entire global long distance functions to third parties. And outsourcing appears to be the strongest part of generally weak enterprise information technology spending as well.
More than 40 percent of large businesses have cut their information technology budgets this year due to the global economic slowdown, according to a new survey by Forrester Research (News - Alert). Forrester surveyed nearly 950 senior IT managers across North America and Europe regarding their IT services spending and overall services strategies and priorities as part of the survey.
About 43 percent of respondents say their firms already have cut overall IT budgets in 2008 in reaction to the slow down in the global economy, while 24 percent of firms have put discretionary spending on hold. About 28 percent said there had been no impact on IT budgets.
Some 70 percent of respondents said they likely will attempt to negotiate lower rates with suppliers, and 16 percent said they have already cut their IT services spending.
IT departments in the financial services industry were hit hardest, as you might expect, given the serious dislocations in the mortgage and derivative markets. About 49 percent of IT shops in the financial services sector have cut their budgets. Still, even in the media, entertainment, and leisure industry, 39 percent of respondents said they have had to reduce spending.
IT departments in North America have been affected by the economy more than their European counterparts: 49 percent of North American firms have cut their IT budgets compared with 31 percent of respondents in Europe. But Forrester researchers caution that the survey was fielded in the second quarter 2008, prior to the deteriorating economic conditions in Europe.
"With regard to the services sector, the slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly," said Forrester analyst John McCarthy.
It appears hardware and software projects are bearing the brunt of the cutbacks, as "demand for services holds steady," Forrester said. About 45 percent of firms plan to increase their use of applications outsourcing, while 43 percent of firms are increasing their use of infrastructure outsourcing. About 43 percent of respondents said they are moving more work offshore.
Infrastructure outsourcing also is on the rise, as convergent telecommunications and network management will be oursourced by 20 percent of firms this year, the survey finds.
Separately, surveys by Changewave likewise have found a serious pullback in IT spending as well. About 30 percent of respondents said they have spent less on IT than planned, so far this year. About 12 percent said they have spent more than planned.
About 29 percent say their company's IT spending will decrease, or there will be no spending at all, in the fourth quarter. About 13 percent said spending will increase in the fourth quarter.
High energy costs are an issue, as is uncertainty caused by the potential impact of a change of national Presidential leadership. About 35 percent of corporate respondents reported high energy costs were affecting their company's IT spending plans for the second half of 2008.
But 25 percent also said the U.S. presidential election is having an impact on their company's IT spending decisions.

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Read archived editions of Show Daily eNewsletters from ITEXPO (News - Alert) West 2008 here. See you in February!

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary's articles, please visit his columnist page.

Edited by Mae Kowalke


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