Growing concerns about the possibility of an economic slowdown have led to speculation about the impact such an event might have on the ICT industry. Acknowledging that a downside scenario can be constructed, John Gantz, Chief Research Officer at IDC USA, reminds industry watchers that an upside scenario, based on historical trends, is equally feasible.

"The macroeconomic indicators that IDC uses to gauge the strength and direction of IT spending do not yet indicate that we are headed for a downturn in global IT spending," noted IDC USA Chief Research Officer John Gantz, who is visiting India for the first time as the keynote speaker at Directions 2008, IDC's 20th annual briefing session for the ICT industry in India. As a result, IDC's forecast for worldwide IT spending growth remains unchanged at 6.5% in 2007.

Taking a step back, historically, the best leading indicator for overall technology spending has been the rate of growth in PC shipments. The two previous IT market downturns, in 1992 and 2001, were preceded by a sharp drop-off in PC sales. Historically, PC investment is a strong indicator of IT spending sentiment because PC purchases can be easily and quickly postponed in the event of belt-tightening (the impact on software and services spending, by contrast, can take longer to materialize over a period of several months – in the early part of 2001, for example, software sales appeared stable and healthy until, as more than one software CEO remarked at the time, "falling off a cliff".

PC Sales a lead indicator

All of which means that any downturn in worldwide PC shipments during the first quarter of 2007 would have represented a major cause for alarm and concern with regard to prospects for overall IT spending in the remaining months of this year. That we have avoided this most explosive of bullets is a cause for composure, if not for celebration.

The question now is to what extent Q1 represents a turning point, in either a positive or negative direction. The answer depends largely on your view of the US and global economy, and where macroeconomic indicators are pointing for the next twelve months.
The downside scenario holds that worldwide PC sales were artificially and temporarily inflated in Q1, partly by consumer demand, which is already softening in the face of real estate price declines and energy cost increases.

The upside scenario, however, takes a view based on the relative stability experienced so far in Q1. Not only did worldwide PC shipments beat expectations in the first quarter, but other areas of IT spending appear to have remained broadly healthy during this period too (with some uneven growth and volatility, partly related to shifting demand and buying habits). In particular, spending on network equipment has been robust in recent months and quarters, reflecting the continued enthusiasm amongst enterprises and network service providers for VoIP, virtualization, mobile solutions and network convergence.

We maintain strong forecasts for investment in network equipment during the remainder of 2007, and there are currently no indicators to change this view. Surveys continue to indicate, also, that businesses remain enthusiastic about the potential benefits of software-related solutions including on-demand software, business intelligence and information management, a statement issued by IDC India on the eve of its 20th IDC Directions in New Delhi and Bangalore on May 2 and 4 respectively.

The level of economic debate is particularly pertinent to IT spending projections, because not only is the technology industry more firmly linked to macroeconomic indicators than in the past but also because economic anxiety is probably responsible for any delayed spending. Our surveys of corporate IT buyers have shown that firms are more sensitive to macroeconomic sentiment than in the past, with a tendency and an ability to delay IT purchases in the event of uncertainty.

This underlines the importance of macroeconomic indicators in the next 3-6 months. If the upside scenario holds true, and the outlook for 2008 remains robust, increased confidence should translate into increased business investment in the second half of this year. If the downside scenario occurs, however, then firms will move quickly to delay and postpone IT projects in the second and third quarters as they seek to insulate themselves through rapid cost-control policies, notes IDC.

IDC's IT forecasts based on set of macroeconomic assumptions

IDC's IT forecasts are published alongside a clear and firm set of macroeconomic assumptions which are based upon the average, middle-ground view of everything from GDP to corporate profits to stock markets to oil prices. In the event that these assumptions change in the coming weeks and months, our forecasts will also be adjusted accordingly, says global research firm IDC.

Based on current macroeconomic assumptions and Q1 2007 data, however, IDC maintains its view that the IT market will expand in the range of 6--7% during 2007.What does all this mean to the Indian IT Industry, which gets a substantial contribution from exports revenue, primarily from the USA. The important considerations for Indian IT services suppliers to the West would seem to extend beyond just economic conditions.

"The key issues for the Indian IT export market will lie less in overall worldwide IT market growth and more in the internal dynamics around IT outsourcing, Indian labour supply, and competition from other regions," said John Gantz shortly before embarking on his India visit. 

"For the domestic market, the usual challenges of dealing with rapid innovation will apply, from virtualization in the data center to convergence, software-as-a-service, and advanced security," Gantz added.

About IDC
IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. Over 850 IDC analysts in 50 countries provide global, regional, and local expertise on technology and industry opportunities and trends. For more than 42 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and Events Company. You can learn more about IDC by visiting www.idc.com  

About IDC India 
IDC India, an ISO 9001:2000 company, is the country's most comprehensive, dependable and respected source for market intelligence and consulting in the fields of IT, telecommunications and consumer technology. With its head office at Gurgaon (near New Delhi), the company has branches at Bangalore,Chennai, and Mumbai. You can learn more about IDC India's Directions 2008. by visiting www.idcindia.com/events/Directions2008/dir2008.htm 

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