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Global IT Spends to reduce in growth


From Financial Times:

Global spending on IT goods and services is expected to grow to just $1,695bn in 2008, a 6 per cent increase on last year, according to Forrester Research, the market research group. This represents a significant slowdown from 12 per cent growth last year.

Only two months ago, Forrester predicted IT spending would grow 9 per cent to $1,7580bn this year, but the group has pared this forecast back after a series of poor reports on the US economy.

IT spending growth in the US, which accounts for about a third of the global total, is expected to slow to 2.8 per cent, from 6.2 per cent growth last year.

Spending in Asia is expected to be about 9 per cent, the strongest region for growth, but still representing a slowdown from 15 per cent growth last year.

In Europe, IT spending growth will fall from 15 per cent last year to 5 per cent.

The hardest-hit sectors will be computer and communications equipment, with software and services seeing stronger growth. Mr Bartels stressed that the technology slowdown would not be as severe as in 2001, when spending actually declined. “The tech sector will still grow marginally better than the overall economy. This is not a technology bust, it is a slowdown in growth,” he said.

Note however that there is no prediction of cutting costs – the idea is only that spend GROWTH will be lower, not the actual spending itself.

Given this, would you buy IT stocks? While I think the US recession is bad, the effort to cut costs there may drive work to India. Yet, with a dropping dollar and reducing cost-arbitrage, the chances are that jobs will simply fly to cheaper locations in the US and Europe.

This time it is actually much much worse than 2001 for the US economy, and in turn for the world economy. I would not buy anything that depends on IT exports, because if you have big customers going bust you don’t really have the ability to find other sources of revenue to replace that.

I am bearish on IT even now, although prices are at reasonable levels. Some of the “value” in these stocks comes at p/e’s below 15 and indeed, we may see that happen soon.


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