$300m hit for IT as companies tighten up

The recession is putting huge pressure on the country's $1 billion corporate technology sector and a survey suggests businesses will slash IT spending by almost a third this year.

A poll of more than 350 organisations by business technology magazine iStart found they plan to cut capital expenditure on IT and communications systems by 32 per cent this year compared with last year.

iStart general manager Hayden McCall said the survey results indicated a $300 million drop in total revenue for the country's technology providers this year.

iStart has run its IT investment intentions survey for the past four years. McCall said this year's findings - published in the magazine's latest issue - would come as no surprise to the IT industry, which is already feeling the pinch as projects have been put on hold and spending in the sector has evaporated.

"Anecdotally, we already knew that virtually all of the vendors we deal with were finding conditions tough, so this result really just backs that up," he said.

"However, a 32 per cent decline was probably more than we had anticipated."

Small businesses have reacted fastest to the tough economic times, with the survey finding organisations employing less than 20 staff planned to cut IT capital expenditure by 70 per cent this year. McCall said this meant small businesses were essentially reducing their IT spend down to only what was absolutely necessary for capital replacement.

Even more concerning for the IT sector - which comprises around 500 businesses selling and servicing IT hardware, software and telecommunications equipment - was the survey's finding that large organisations (those employing more than 200 staff and who are collectively the biggest group of business technology spenders) planned to cut their IT capital expenditure by 31 per cent from 2008 levels.

Bryan Winters, whose marketing consulting www.enablers.co.nz specialises in the IT sector, said one impact of the tight market was a change in the relationships between multinational IT companies and the local "reseller" businesses that had traditionally marketed their products to smaller business users.

"I'm hearing of more co-operation emerging in multinational/reseller relationships," Winters said.

"In the past, multinationals could effectively bar resellers from large accounts but now they are allowing more flexibility in bidding to big clients, rather than see the reseller ally with a competing multinational."

He said with the sales environment getting tougher, the successful IT companies would be those that were able to effectively market their technology as a service to help business clients improve their efficiency.

"Getting that problem-solving message through is the sales opportunity, which is where many IT firms need to sharpen their act."

The iStart survey found the biggest IT spend-up this year would be on upgrading company infrastructure, with 51 per cent of organisations saying they still intended to invest in hardware, servers and network equipment.

The second most popular planned investment was in enterprise resource planning - the financial software platform used by larger businesses. Thirty-six per cent of organisations said they would invest in either a new or upgraded ERP system this year.

The survey also confirmed the growing popularity for software-as-a-service, or software delivered over the internet and charged for on a monthly basis rather than sold and installed on a user's own computers.

Sixty per cent of organisations said they were already subscribing to some form of SaaS business solution.

The most popular application was hosted email (used by 13 per cent of survey respondents) followed by ERP and customer relationship management SaaS solutions (both used by 8 per cent of businesses).

The SaaS model is proving popular with businesses because it cuts out the need to stump up a large initial payment to purchase software, and can also reduce investment in servers and other technology because data processing is done by the software provider.