Businesses are planning to scale back their IT spending in the third quarter of 2007, according to a survey released by a US-based investment research firm.

IT spending usually slumps in May, but now the percentage of companies planning to increase their spending has fallen to its lowest point in the last four years. The portion of technology and business executives who plan to increase IT spending fell from 34 percent in November to 26 percent in May, according to the report from US-based ChangeWave Research, a division of Phillips Investment Resources.

Business IT spending is undeniably slowing down, and it has been for a while, actually

Paul Carton — ChangeWave research director

The survey also showed signs of weak spending throughout the second half of 2007, with the biggest slowdown hitting the server market. The portion of technology leaders who said their companies do not plan to buy any servers during the third quarter rose from 31 percent to 35 percent, the survey said. The results came from responses to a poll of 2029 US-based senior technology and business executives during the week of May 15, 2007.

The forecast seems to validate Dell's decision that it would lay off 10 percent of its 88,100 employees over the next 12 months, after profit fell slightly for the first quarter.

Dell fared the worst of all PC vendors in the survey, which showed that the number of businesses planning to buy Dell desktops and notebooks has fallen to its lowest level in two years. The portion of corporate buyers planning to purchase a Dell desktop over the next quarter fell from 45 percent in August 2005 to 34 percent now. The numbers for laptops were almost the same.

In contrast, Hewlett-Packard hit a two-year high in the number of businesses planning to buy both desktops and notebooks. Apple and Lenovo Group were essentially flat, while Gateway showed an increase in desktop demand.

"There are rays of light; HP has shown an extraordinary rise, and there's a little pop in consumer spending. But business IT spending is undeniably slowing down, and it has been for a while, actually," said Paul Carton, director of research at ChangeWave Research.

Part of that spending pullback is driven by the normal seasonal business cycle, he said. But in 2007 many companies are cutting their IT spending more than usual as they look for extra funds to meet rising energy costs.

The slump in corporate IT spending plans is not the only sign of a softening economy. The analyst group Gartner scaled back its forecast for 2007 global semiconductor revenue growth from a 6.4 percent rise over 2006 levels to just 2.5 percent. That soft market could put a big dent in future earnings for processor vendors like Intel and Advanced Micro Devices (AMD), and for memory chip vendors like Samsung Electronics.