IT suppliers have so far avoided the worst effects of the credit
crunch because businesses are continuing to spend on IT.
The number of UK technology suppliers issuing profit warnings
has almost halved in the second three months of this year, compared
to the previous three months, according to research from
Ernst
& Young. Other sectors including finance and house building
are struggling.
UK suppliers of IT software services, hardware and equipment
issued 12 profit warnings in the second quarter of this year
compared to 20 in the first quarter, the research shows. According
to the latest research from Gartner, the IT services market will
remain strong in 2008, with spending forecast to increase 9.5%
compared to last year, reaching $819bn.
IT suppliers have been shielded from the full effects of the
downturn because many large firms are part-way through long-term IT
projects which take a number of years to complete. At the same time
IT investments are increasingly seen as business critical by small
companies.
But James Bennet, technology director at Ernst & Young, said
the good times for suppliers may not last. "We would have
expected to see tough times ahead for all organisations in this
sector as the fuller extent of the global financial challenges
played out in local markets."
Justin Speake, CEO at analyst firm Bloor said it is business as
usual for most businesses, "but they are doing business with more
rigour".
"Businesses are not killing any big projects and budgets seem to
be the same as last year. This is because there is a slowdown
rather than a full recession," added Speake.
Phil Morris, managing director Europe at outsourcing consultancy
Equaterra, said cutting
spending on projects which change how a business operates, such as
outsourcing contracts and major IT implementations, is not an
option.
"
Investment is still going on. In the IT outsourcing sector we
are seeing that decisions took longer in the early part of the
year, because people preferred to see what would happen, but then
went back on the gas."
IT directors are yet to feel major cuts to IT budgets. Richard
Swann, head of IT at the Institute of Directors, said long-term
projects are unlikely to be postponed despite the economic
outlook.
"If you are halfway through a three-year project it is hard to
pull the plug," he said. "Projects such as upgrades to operating
systems could be put on hold, but I have not seen any evidence of
this yet."
Small businesses are actually
increasing their spending on IT, according to the
Federation of Small
Businesses. Head of public affairs Stephen Alambritis said, "We
think they will invest more in IT in order to gain more business
and depend less on manual processes to reduce labour costs."