“Vicious Circle” Is Impacting the U.S. Economy and IT Spending, IDC Says, but End Is in Sight

FRAMINGHAM, MA – APRIL 30, 2001 – According to IDC, the United States has been engulfed in a vicious circle that has caused the economy and technology spending to stumble. However, the global market intelligence and advisory firm is confident that things will not spiral out of control and instead predicts conditions will improve within a year.


"The tumbling NASDAQ triggered a vicious circle in which lower stock values dampened IT spending and contributed to a broader economic downturn that, in turn, has put further pressure on technology spending and share prices," said Kevin White, a senior analyst with IDC’s Global IT Economic Outlook research program. "However, the fundamentals underpinning IT investment remain strong, and this factor, along with a rebound in the economy, will restore IT spending in 2002 and beyond."

In the meantime, IDC expects U.S. IT spending growth to slow to 7% in 2001, down from 11% last year, and says it could fall as low as 5% if the economy continues to deteriorate. Hardware will bear the brunt of the downfall. Its spending growth will free-fall from 9.6% in 2000 to – 1% in 2001.

"Evidence suggests that software and services are more resistant to a downturn in the economy than hardware," White said. "Hardware may be more vulnerable because of the cyclical nature of business investment and household spending on consumer durables."

According to IDC, two main factors will help curb the IT spending slowdown: the Internet and productivity building. "The long-term trends in ecommerce and Internet usage are strong," White said. "The expansion of their use will benefit not only Internet companies and retailers but also hardware and software vendors whose products power the Internet."

Additionally, businesses continually look to technology to improve their productivity, and this will not change. "Most businesses realize that investments in technology pay for themselves by improving internal efficiency and expanding external opportunity," White said.

IDC recently published three bulletins and a report that discuss the U.S. economy’s impact on worldwide IT spending:

· U.S. Technology Slowdown: When Will the Slide End? (IDC #B24413) looks at what a continuing downward slide of the U.S. economy would mean for the IT market and discusses when the slide will end.

· Will a U.S. Recession Spell the End of the IT Boom? (IDC #B24315) analyzes the impact of past economic slowdowns on IT spending and discusses how and to what extent economic disturbances affect different IT market segments.

· After the Crash: Where Do We Go from Here? (IDC #B24521) looks at what caused the slowdown in U.S. technology spending and the prospects for recovery.

· Global IT Economic Outlook, 2001 (IDC #B24190) provides detailed insight into the economic and business conditions affecting technology spending in 52 countries around the world. The report discusses current market conditions and technology spending trends.

To purchase any of these documents, contact Cheryl Toffel at 1-800-343-4952, extension 4389, or at ctoffel@idc.com.

About IDC

IDC is the foremost global market intelligence and advisory firm helping clients gain insight into technology and ebusiness trends to develop sound business strategies. Using a combination of rigorous primary research, in-depth analysis, and client interaction, IDC forecasts worldwide markets and trends to deliver dependable service and client advice. More than 700 analysts in 43 countries provide global research with local content. IDC's customers comprise the world’s leading IT suppliers, IT organizations, ebusiness companies and the financial community. Additional information can be found at www.idc.com.

IDC is a division of IDG, the world's leading IT media, research and exposition company.


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