Global technology spending to drop this year

NEW YORK (AP) — Technology companies face a bumpy ride in 2009.

Global business and government spending on computer, software and communications products and consulting services is expected to decline three percent this year, Forrester Research said in a report due out Tuesday.

This would mark the first decline since 2002, when information-technology spending dropped six percent after falling the same amount in 2001.

However, this downturn is not expected to last as long.

Forrester projects tech spending to recover next year, rising as much as nine percent in 2010.

In addition to the recession, the strengthening dollar is also to blame for the drop-off Forrester sees this year. Just as the weak US currency boosted the growth rate of technology purchases made in dollars in 2008, the now-stronger dollar will hurt it in 2009, according to Forrester. Western Europe’s technology spending rate is a good illustration of the currency discrepancy: measured in dollars, tech purchases in the region will be down seven percent in 2009. Tech purchases in euros will be up one percent.

To neutralize the effect of currency changes, Forrester also projected the global technology market using a “basket” of local currencies, weighed for how big a share of the market each region holds.

Using this measure, technology purchases are expected to have grown by four percent in 2008 and post growth of three percent in 2009, and six percent in 2010.

Certain aspects of technology will fare better. For example, Forrester expects software purchases to total $388 billion this year, the same as in 2008. But computer equipment purchases — which includes personal computers, servers and storage devices — are expected to decline four percent, to $434 billion. That’s because businesses often see software as a moneysaving tool, while buying new computer equipment is something that can be put off until more prosperous times.

There are other trends at play, too, such as an ongoing decline in the server market, independent of the economy, said Forrester analyst Andrew Bartels. More companies are embracing server virtualization, a technology that allows one server to function as multiple machines, saving companies money and energy.

Businesses are also realizing that their employees can use BlackBerrys, iPhones and small laptops known as netbooks for work. So, the analyst said, rather than issuing workers both a PC and a BlackBerry, companies might stick with just a BlackBerry.

A decline in demand for personal computers and other electronics weighed on the semiconductor industry for much of 2008. Intel Corp., the company behind the bulk of microprocessors that serve as the brains of PCs, lowered its fourth quarter revenue guidance for the second time last week amid weaker than expected demand.

While 2009 does not look good when it comes to tech spending, things aren’t as dismal for the sector as they were in 2001 and 2002, after the bursting of the 1990s Internet bubble. In each of those two years, Bartels noted, technology spending declined 6 percent - and that would have been true regardless of currency fluctuations.

Since then, technology has become so interwoven into how a company operates that it’s no longer considered discretionary spending.

“It is the muscle of companies,” Bartels said. “It allows them to do what they want to do.”