Corporate IT budgets evaporating, report says

Corporate IT budgets evaporating, report says

Citi projects 10 to 20 percent decline in 2009; could be worst-ever year for CIOs

US corporate IT spending will plummet 10 to 20 percent in 2009, according to the latest projections from Citi Investment Research, which is reporting a "rapid deterioration" of CIO budgets in recent weeks.

Citi's outlook is the most negative of any major research outfit to date. Forrester as of last week was still projecting 1.6 percent growth.

Citi's dire prediction is an about-face from the results of a survey of 200 CIOs in September, which indicated that corporate IT spending on hardware, software and services would grow 1 percent next year.

The collapse of the financial markets is causing CIO budgets to dry up.

"Financial services IT budgets look to be down 10 to 20 percent," says Citi spokeswoman MaryEllen Hillery, who said nonfinancial services firms have less visibility into their IT budgets but are projecting declines.

"It's the events of the last couple months -- the credit crisis, the heightened focus on cash outlays of all kinds, consumer spending trends, employment trends, the realization that this is a really bad downturn we are looking at," Hillary adds.

If Citi's prediction is true, next year will be the worst year ever for corporate IT budgets.

"To put this in perspective, we have had overall IT spending at flattish only once before -- in 2002 -- while all other years the IT budget has grown."

The Citi research report, titled "IT Services Update -- Recent Checks Negative," was released Thursday.

One of the challenges for forecasters like Citi is that IT executives are later than usual at finalizing their IT budgets for the first quarter of 2009. This is causing IT buyers to defer spending until the second half of 2009 to protect against future budget cuts.

"Clearly budget discussions have gone poorly for CIOs following the market disclocation in September and October," the report states.

Banks are further along at cutting their IT budgets for next year and are pressuring IT services firms for discounts as high as 15 percent from 2008 fees. Citi says that while the financial services sector is being most aggressive in demanding price cuts from IT vendors, the retail, media and technology sectors are likely to follow suit.

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