IT spending tipped to drop but SMEs remain resilient

Large Australian corporations are set to decrease IT spending by 4.3% to $24 billion during the current financial year with the biggest decrease in the telecommunications and government sectors, a new report has revealed.

But the biggest growth in expenditure is likely to come from smaller companies due to the take-up of new technology such as Windows 7, a computer expert says.

ICT Strategic Services chief executive Paul Hauck says smaller companies are more likely to increase spending due to better economic conditions, and the take-up of new technology.

“I suppose what we are seeing is that companies exposed to the international markets are having difficult times, so I would expect to see a lot of significant IT spending deferred due to the slow activity in the global market,” he says.

The claim comes as a number of large organizations, including Telstra and Qantas, are expected to slash their IT budgets, while PC sales worldwide have dropped 15%.

“However, smaller domestic companies are still doing fairly well. All the growth is going to be driven by smaller companies being more aggressive, and hopefully that will outweigh some of the negativity in the market. Larger companies are tentative, but smaller companies less so and are turning around more quickly.”

According to ITNewcom’s latest IT Market Study for 2009-10, which surveyed 44 organisations, spending is set to fall over the next year due to budget cuts planned earlier in the year when economic conditions were more unstable.

Government spending is set to shrink from 18.5% to 13.6% of all spending, due to budget cuts specified in an official policy review. Spending from utilities services will fall from 6.3% to 6.1%, with industrials also falling from 3.4% to 2.8%.

The only massive gain is expected to be in the financials sector, which last year accounted for 9.4% of all spending but is set to increase to 13.9% this year. It is also the biggest operational expenditure of the year.

The report also found a greater proportion of companies are increasing the number of outsourcing work. It comes after recent claims that smaller firms are likely to survive the upcoming IT skills shortage by obtaining outsourced work.

According to the survey, 30% of private sector and 37% of public sector organisations will outsource work, with the top three reasons for outsourcing work being unavailable resources in the organisation, saving money and allowing the company to focus on “core business”.

ITNewcom managing director Brendan Welsh said in a statement the drop in IT spending is “not surprising”. He also noted many companies are rejecting some new trends, including the current state of cloud computing.

“The IT sector tends to be a lagging indicator of the economy and we are now seeing the full impact of the global financial crisis. In addition, the Australian IT sector still has to weather the implementation of the Federal Government’s Gershon recommendations, including significant reductions in Federal Government IT spend over the next two years.”

“There is significant interest in cloud computing, however the majority of the solutions are perceived to be too immature. Suppliers also need to demonstrate that their cloud computing solutions will secure and protect data especially in the Financials and Government sectors, and that their pricing models will deliver ongoing cost savings as demand increases.”