More warnings over falling IT spend

Credit conditions are expected to worsen

The prospects for the US IT hardware sector have been revised downward to a "negative" rating from "stable" by influential credit information firm Moody's, on fears that deteriorating economic conditions will affect IT spending.

The outlook expresses Moody's expectations for the credit conditions in the industry over the next 12 to 18 months.

"The deepening global economic downturn has severely truncated expectations for technology spending worldwide, leading us to anticipate a single-digits decline in overall IT spending in 2009," said Richard Lane, Moody's senior vice president.

Moody's expects the worst year in the sector since the dot com crash in 2001, when IT spending also fell by single digit percentages.

While few industries will escape the downturn, Lane said he thought the parts of the IT hardware sector that will be particularly hard hit are those dependent on one-off equipment sales rather than long-term revenue from services and supplies.

"While this recurring revenue is exposed to declining economic activity, it is more resilient than pure product sales," he said.

Companies with the highest level of recurring revenue tend to have the highest credit ratings, said Lane.

Companies such as IBM, Pitney Bowes, HP, Xerox, and Lexmark, generate between 30 per cent and 75 per cent of revenue from recurring sources. Dell, with less than 10 per cent of its revenue from recurring sources, is an exception.

But Lane said the sector is better positioned to weather the storm than it was in 2001.

Aggregate cash balances for the industry of $41bn (£29bn) equate to 12 per cent of annual revenue as of December 2008, compared to $20bn (£14bn), or seven per cent, at the end of 2000, he said.