Date:19/10/11

Economic worries cloud IT spending priorities

There is increasing uncertainty over the future of IT budgets, with conflicting signals over whether businesses are set to ramp up investment in IT and what types of project - if any - will get the green light.

Analyst firm Gartner is bullish about the prospects of IT budgets. It predicted businesses across the globe will spend $2.7tn (£1.7tn) on IT in 2012 – up 3.9 per cent on 2011.

Despite economic tensions, firms are investing more in IT, because those investments are the best way to deliver business growth, said Peter Sondergaard, global head of research at Gartner.

“This year, 350 companies will each invest more than $1bn in IT. They are doing this because IT impacts their business performance,” Sondergaard told delegates at the analyst group’s annual IT leaders shindig in Florida.

Key priorities for businesses will be IT investment in cloud services, mobile infrastructure, social technologies and information analytics, he added. Those messages chime with the latest financial figures from technology bellwether IBM.

In its most recent financial quarter, IBM reported that spending on business analytics have rocketed 19 per cent year on year. The amount businesses spent on cloud services in the first three quarters of the year already stands at double of the previous year's spending.

“In business analytics, we are helping our customers manage and optimise tremendous amounts of data,” said Mark Loughridge, IBM’s chief financial officer. But scratch below the surface of IBM’s results, and the picture looks a little gloomier.

While IBM reported that overall revenues had grown eight per cent to $26.2bn, the increase would have been just three per cent without fluctuations in exchange rates.

Additionally, the bulk of that figure was driven by increased IT spending in its so-called growth markets. IBM’s revenues in Europe, the Middle East and Africa were flat when accounting for currency fluctuations.

In its services business, IBM’s results cast a very different light on firms’ IT spending plans, said Georgina O’Toole, an analyst with research firm TechMarketView.

“One can only assume that outside of the emerging markets, the main geographies suffered declines [in spending],” she said. IBM’s results suggest that IT chiefs are taking a more cautious approach to spending, said Tim Jennings, chief analyst at Ovum.

“While there is still investment in innovative projects targeting business growth, there is also delay in less strategic projects such as infrastructure refreshes, and sales cycles have become extended,” he said.

Separate research, conducted by wireless equipment maker Netgear, shows how spending priorities in UK firms are diverging.

Of the 200 firms it polled, more than half said they had increased their IT budgets since 2010, with many reporting significant increases.

The problem facing many firms is that too much of their IT budget is going on maintenance, said Jonathan Hallett, a director at Netgear.

While that has long been the case, eight per cent of firms surveyed said that their entire IT budget is consumed by maintenance. “Unless firms take steps to reduce maintenance costs, it can be hard to fund other projects,” he added.

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