Companies Cutting IT Spending Solution Providers UnaffectedBy Lawrence Walsh | Print
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Even as the slowing economy causes end users to rethink IT spending, solution providers report business being brisk. Can this paradox last?
No surprise that the Feds took over mortgage giants Fannie Mae and Freddie Mac, in a bail out that will make the savings and loan meltdown on the early '90s look like a gift to the U.S. taxpayers. Early estimates say the bailout will cost as much as $200 billion – astronomical figures, and completely necessary, the government says, because allowing the two mortgage giants to fail would do irreparable harm to our already shaky economy.
The problems at Fannie Mae and Freddie Mac underscore the softness in the financial services sector that is seeing a continuing string of bank and investment house failures. Earlier this year, the subprime mortgage market claimed Bear Sterns, one of the biggest brokerage houses on Wall Street. The Federal Deposit Insurance Corporation—FDIC to most of us—is tracking dozens of weak banks for signs of imminent failure. At least a dozen midsized financial institutions have gone under since the beginning of the year.
It’s little wonder that banks and financial services companies—a vertical that consumes more IT than most other industries—are among the leaders in cutting IT spending this year.
According to a new Forrester Research, 49 percent of the senior enterprise technology managers surveyed say that they’ve cut their spending on IT hardware, software and services. Nearly all said they’ve frozen discretionary technology spending and one in five have delayed the implementation of new tech projects. More than 40 percent of survey respondents in manufacturing, retail, utilities, and telecommunications say they will cut IT spending further.
Numbers like these should come as no surprise given the state of the economy. Jobless claims jumped to 6.1 percent in August and rising energy costs are fueling the inflation of food and transportation. Oil indexes and stock markets have little consistency, as their trend lines look more like roller coasters than charts. And you can’t listen to Barrack Obama or John McCain speak without invoking some notion of the state of the economy (ah, presidential year politics).
And yet, in spite of all of this, solution providers and IT vendors are reporting brisk business. The major multinational vendors, such as Microsoft, HP and IBM, have posted strong earnings and profits. And every VAR, developer, integrator and white box builder is saying they’ve never been busier. When Channel Insider conducted its 2009 Outlook survey last fall, solution providers anticipated strong growth in new customers, revenues and profits. Anecdotal intelligence seems to show that, despite challenges, nothing has truly dimmed the IT business performance.
To be fair, the big vendors' continuing growth and mounting top-line revenues isn’t coming from the U.S. and European markets. Big Blue, HP and Cisco, for instance, are all benefiting from strong sales in developing markets (China, India, Russia, Brazil, Eastern Europe, etc.) and fluctuations in currency trading (a weak dollar makes for strong conversion when cashing in foreign currencies).
Solution providers will say that their continued health is coming from the need by customers to cut costs through the efficiencies gained through technology investments. While large enterprises may be cutting back IT spending, small and midsized businesses are making strategic investments that make them more nimble – mobility, virtualization and managed services. Solution and service providers that offer hosted services, Web-based applications and remote management are reaping tremendous rewards by giving end users—particularly companies with less than 50 seats—an alternative to having full-time resources on the payroll and having to invest in expensive software licenses.
But these are not times for complacency. While solution providers see the acquisition of new customers as the key to their growth, vendors are looking at expanding footprints within existing customers as the route to sustained revenue growth. Either route requires vigilance and perseverance in connecting with existing customers and sales prospects, identifying their immediate and long-term IT needs and demonstrating the value of technology in running and expanding business. Solution providers may be busy, but it doesn’t mean things are easy. Solution providers who put in the effort to grow their business will be the ones that have the most value to their vendor partners, receive the most marketing and technical support and, subsequently, growth their customer and revenue base.
Solution providers have no choice but to hunt for new opportunities and new customers, since no one knows if their bank will be the next filing for FDIC relief.
Lawrence M. Walsh is vice president and group publisher of Channel Insider. How is the slow economy affecting your business? Let Larry know at email@example.com.