IT Spending Remains on Track with Expectations, According to IDC, But U.S. Economic Woes are Spreading to Other Regions

FRAMINGHAM, MA – May 13, 2008 – IT spending remained broadly in line with prior expectations during the first quarter of 2008, confirming a deceleration in some areas of demand in the United States. IDC believes the stagnant economy is still expected to drive overall IT spending growth down to around 4% in the U.S. this year, compared to last year's growth of 6%.

International demand continues to mitigate the impact of the U.S. slowdown to some degree, particularly in relation to favorable currency trends which have buoyed the reported earnings of U.S.-based vendors. Some tentative signs of weakening demand and indicators have emerged in Europe and Asia, however, and there remains an elevated risk of further downside patterns in the next three quarters. Worldwide IT spending is expected to increase by 5.7% this year on a constant currency basis, down from last year's 7.2%.

The first quarter results have not disrupted IDC's prior view on U.S. IT spending this year, with signs of softening demand in the PC market confirming that a broad-based but so far contained slowdown is in effect. We reaffirm our view which calls for hardware market growth in the U.S. of less than 2% this year, while software spending will increase by 7% and IT services by 5%. Strongest growth continues to come from back-end software (system infrastructure and application development tools), network equipment, and mobile devices. However, downside risks relating to macroeconomic weakness in the U.S. are expected to persist throughout the remainder of 2008.

"In a downside scenario, we could be at the beginning of a classic IT spending slowdown," said Stephen Minton, vice president of Worldwide IT Markets at IDC. "In every previous IT recession, the first sign of weakness has shown up in a softening of PC shipments. This has then transmitted to other hardware sectors within one quarter, to software license sales within half a year, and to the IT services sector if the recession persists for more than three quarters. Until we deviate from that course, we must closely monitor all other sectors of the IT and telecom industries for indicators of a further round of spending cuts. While this downturn will not resemble 2001 in terms of scale, it could yet be similar in terms of timing."

International markets are also feeling the impact of the U.S. slowdown, to varying degrees. IDC has lowered its forecast for Western Europe to 4.1% growth in IT spending this year, and for Asia/Pacific to 5.4%. Manufacturing exporters and financial services firms are likely to be the hardest hit, and this will be reflected in adjustments to their short-term IT investment plans. Booming growth has continued in resource-based economies such as Russia and the Middle East, however, and IT spending in those regions is expected to continue its double-digit rate of expansion this year.

"The global economy is still faced with a variety of risk factors," said Anna Toncheva, economist at IDC. "Intensifying financial instability, inflation pressures, and global imbalances have lead to increased synchronization of the business cycles between the U.S. and the rest of the world over the first quarter of 2008. When business cycles are closely tied together, macroeconomic shocks tend to spread faster from one area to another. And though the current housing and financial crisis in the U.S. seems comparable only to the mildest cases in world history, the compression on global economic activity will probably linger over the course of the next 6-7 quarters and will inevitably discourage investment plans."

The IDC study, Worldwide Black Book Q1 2008 (IDC #212290), analyzes market trends and conditions in 54 countries around the world. Forecasts for 2007-2012 are provided across 20 technology sectors in each country.

IDC's outlook for global IT spending in 2008 will be discussed in greater detail in an IDC Telebriefing scheduled for May 15th. For more information, or to register for this event, please visit http://www.idc.com/getdoc.jsp?containerId=IDC_P17164.

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. More than 1,000 IDC analysts in over 110 countries provide global, regional, and local expertise on technology and industry opportunities and trends. For more than 44 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.

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