Tougher Times for IT Spending

Survey shows a pullback in corporate spending, but iPhone is gaining traction among businesses

By Paul Carton

The downturn in the U.S. economy is far from over. ChangeWave's latest IT purchasing survey shows an even greater pullback occurring in corporate spending for the current quarter and for the next 90 days.

At the same time, though, the Apple (AAPL) iPhone is beginning to gain traction in the corporate marketplace, even as competitor Research In Motion (RIMM) maintains its big market share lead.

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We surveyed respondents involved with IT spending in their organization and asked if their third-quarter IT spending was on track to date. The results were the worst we've seen in a ChangeWave survey.

Thirty percent said they've spent less than planned, which is three points worse than our May survey. Just 12% said they have spent more than planned.

Looking ahead, the results are grim. Twenty-nine percent said their company's IT spending will decrease (or there will be no spending at all) in the fourth quarter, which is five points worse than the previous survey.

Just 13% said spending will increase -- a two-point decline from previously.

Thus, the brief period of stabilization we had in May has given way to another major leg downward. In fact, you have to go back to the middle of the last recession (August 2001) to find a ChangeWave survey projecting an IT spending downturn this big.

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What's Causing This Short-Circuiting?

High Energy Costs: Thirty-five percent of corporate respondents reported high energy costs were affecting their company's IT spending plans for the second half of 2008, which is one point worse than previously.

The Election: Another 25% said the U.S. presidential election is having an impact on their company's IT spending decisions.

Bottom Line: Historically, ChangeWave's mid-quarter corporate IT spending survey has proven to be an accurate early indicator of how the quarter will turn out. These grim survey results indicate that the U.S. economic downturn is far from over. In fact, the findings foreshadow even tougher times ahead.

Not only are IT expenditures lower than expected thus far in the third quarter, but we see no signs of improvement in the next 90 days.

These survey results also lend strong support to the thesis that corporate America will continue to hold its powder dry in terms of IT capital investment until at least after the November elections, and perhaps even longer.

When we asked respondents exactly when they thought IT spending would pick up in their company, 39% said not until at least the second quarter of 2009, or later.

Corporate Smartphones: Research In Motion Holds its Lead

In the same survey, we also focused on corporate smartphone buying.

Research In Motion continues to overshadow its two main competitors -- Palm (PALM) and Apple -- in terms of planned fourth-quarter purchases with 79%, but that number is down three points from the record high we registered in May.

We also picked up weaker visibility for RIM in our most-recent consumer smartphone survey in June 2008. At least momentarily, RIM appears to be confronted with visibility issues on both the consumer and corporate fronts.

While the success of RIM's upcoming product launches could put most of these issues to rest, the first new RIM product -- the Bold -- is still not available in the United States.

Given the current "take no prisoners" attitude of the stock market, RIM could be in for a bumpy ride in the short term, at least until there is some proof that its new products are being successfully brought to market.

On the other hand, Apple continues to show considerable momentum in terms of corporate planned purchases -- up four points to 17%.

In short, while recent ChangeWave consumer surveys show the iPhone 3G is having a huge impact on consumer demand, more current results show that the phone is beginning to gain real traction in the corporate market as well.

In another positive for Apple, 19% of respondents reported that the release of the iPhone 3G has made their company more likely to purchase Apple products in the future. Only 1% said less likely.

The phone appears to be creating a "halo effect" in terms of improved overall corporate purchasing intentions for Apple products in general.

Paul Carton is the Director of Research for the ChangeWave Alliance. The Alliance is a network of 15,000 highly qualified business, technology and medical professionals in leading companies of select industries. The Alliance is surveyed weekly on a wide range of business and investment research and intelligence topics.

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