Global recession hits IT hard

Nortel succumbed to financial pressures last week

The global economic crisis is biting the IT industry increasingly deeply.

A series of reports and job cuts announced over the past week have proved that technology spending worldwide is under extreme pressure and IT vendors are being forced to review their plans.

Analyst Forrester Research forecasts that spending on IT products and services will fall by three per cent in 2009 ­ the first such drop since 2002.

Gartner is slightly more optimistic, predicting that IT budgets will remain flat this year, with an average increase of just 0.16 per cent globally and 0.4 per cent in Europe.

And after six years of uninterrupted growth, worldwide PC shipments were down 0.4 per cent year on year in the fourth quarter of 2008, said IDC.

Dave Aron, vice president of research at Gartner, said the situation could have been worse were it not for good IT management practices in recent years. “IT is already pretty lean ­ in the past few years there has not been a lot of budget growth and IT departments have really got their house in order in many companies,” he said.

“Unlike the economic downturn at the beginning of the century, IT is seen as part of the solution this time, as opposed to part of the problem.”

Nonetheless, IT vendors are cutting back in expectation of hard times.

Oracle and Seagate are reported to be cutting about 9,000 staff between them to save costs ­ although neither company had confirmed this as Computing went to press. In the past two months, more than 30,000 layoffs have been announced by technology suppliers worldwide, including Dell, EMC, AT&T, Lenovo and Sony.

Communications vendor Nortel last week filed for bankruptcy protection to rectify its financial problems ­ the company has lost almost $7bn (£4.8bn) since 2005.

Even Google has shed 100 staff and cut back its use of contractors after closing offices and discontinuing less-popular services to reduce costs.

And in the UK, profit warnings in the technology hardware sector rose by more than 60 per cent in the fourth quarter of 2008, according to Ernst & Young.

Gartner’s Aron said that in these circumstances IT leaders need to be resourceful in building an effective organisation, rather than being purely defensive and reactionary.

“A lot of it is about being decisive, focusing on what is strategic a bit more aggressively this year, not getting lost in the muddle and generally focusing on business effectiveness,” he said.