Credit crisis to hit IT industry

The global credit crunch has started to hit the UK IT industry as the first evidence emerges of a tightening of corporate IT budgets, particularly in financial services companies.

Until now the IT sector has managed to avoid the worst of the crisis affecting the investment, mortgage and property industries.

But the impact on banks is having a knock-on effect, according to the chief information officer of a major City investment bank, who asked to remain anonymous.

“IT spending in the City in 2008 will be slim ­ there is an enormous battle for constrained funds,” he said.

“It is an easy, immediate reaction to cut back on IT because staffing pools are very flexible.”

On Friday last week shares in banking system vendor Misys dropped after financial analyst UBS changed its investment advice from “neutral” to “sell” because of fears that IT budgets at banks were suffering.

“We believe that software budgets at financial institutions are under pressure in this quarter and some deals could be postponed or lost,” said a UBS report.

A spokesman for Misys said: “Clearly there is a nervousness in the market around any company that is related to banks at the moment.”

Fears have spread to the UK from US markets. A technology stock sell-off was triggered on Wall Street last week after Cisco chief executive John Chambers said US firms would squeeze IT budgets.

Cisco shares plunged 10 per cent, as the company lost $19bn (£9.2bn) of its value. EMC, Oracle and VMware also saw shares drop more than seven per cent.

Most major UK financial services firms contacted by Computing refused to discuss their IT budgets, saying that all spending areas are constantly under review.

Only HSBC said it had no plans to reduce IT investment.

Banks’ IT budgets will be fairly static, but the situation is not yet a crisi s for the IT industry, said Gartner analyst Peter Redshaw.

“It is an amber light rather than a red light, but the situation will be tough for those vendors whose businesses do not use offshore resources,” he said.