Technology companies face a bumpy ride this year.
Global business and government spending on computer, software and communications products and consulting services is expected to decline 3 percent this year, Forrester Research said in a report yesterday.
This would mark the first decline since 2002, when information-technology spending dropped 6 percent after falling the same amount in 2001.
However, this downturn is not expected to last as long. Forrester projects tech spending to recover next year, rising as much as 9 percent next year.
In addition to the recession, the strengthening US dollar was also to blame for the drop-off Forrester sees this year.
Just as the weak US currency boosted the growth rate of technology purchases made in dollars last year, the now-stronger dollar will hurt it this year, Forrester said.
Western Europe’s technology spending rate is a good illustration of the currency discrepancy: measured in dollars, tech purchases in the region will be down 7 percent this year. Tech purchases in euros will be up 1 percent.
To neutralize the effect of currency changes, Forrester also projected the global technology market using a “basket” of local currencies, weighed for how big a share of the market each region holds. Using this measure, technology purchases are expected to have grown by 4 percent last year, growth of 3 percent this year and 6 percent in 2010.
Certain aspects of technology will fare better. For example, Forrester expects software purchases to total US$388 billion this year, the same as last year. But computer equipment purchases — which includes personal computers, servers and storage devices — are expected to decline 4 percent, to US$434 billion. That’s because businesses often see software as a moneysaving tool, while buying new computer equipment is something that can be put off until more prosperous times.
There are other trends at play, too, such as an ongoing decline in the server market, independent of the economy, Forrester analyst Andrew Bartels said. More companies are embracing server virtualization, a technology that allows one server to function as multiple machines, saving companies money and energy.
Businesses are also realizing that their employees can use BlackBerrys, iPhones and small laptops known as netbooks for work. So, the analyst said, rather than issuing workers both a PC and a BlackBerry, companies might stick with just a BlackBerry.
A decline in demand for personal computers and other electronics weighed on the semiconductor industry for much of last year. Intel Corp, the company behind the bulk of microprocessors that serve as the brains of PCs, lowered its fourth quarter revenue guidance for the second time last week amid weaker than expected demand.
While this year does not look good when it comes to tech spending, things aren’t as dismal for the sector as they were in 2001 and 2002, after the bursting of the 1990s Internet bubble. In each of those two years, Bartels noted, technology spending declined 6 percent — and that would have been true regardless of currency fluctuations.