Businesses May Cut Back Spending on Storage

As financial problems hit every part of the economy, the IT sector is coming to the realization that it isn't immune to a retrenchment in business spending. And it is beginning to look like some of those same trends may bring about a slowdown in spending on storage.

Many savvy IT managers saw the slowdown coming and increased their purchases of storage and other IT products earlier in the year. That has produced low storage utilization rates in large companies not seen since 2003, which is likely to result in "a significant decrease in storage spending for Q4," according to research firm TheInfoPro.

Large companies were "stealing from Peter to pay Paul," TIP's managing director of storage research Robert Stevenson told Byte and Switch. "Instead of spending 40 percent of their budget at the end of the year, they bought more in the first half. It looks like they're going to be spending 10 percent to 15 percent of their budget at the end of the year. As a result, the fourth quarter looks difficult in terms of storage spending."

The midmarket also faces a slowdown, but on a different scale, Stevenson said. "At midsized companies, the storage budget isn't as much of an entitlement and they will cut the budget if they have to," he said. "They may only have a 25 percent increase instead of a 40 percent increase in storage spending."

After interviewing IT decision makers at 250 firms, including 140 at Fortune 1,000 enterprises and more than 100 midsized companies in the U.S. and Europe, TIP concluded: "Storage decision-makers, anticipating future risk, accelerated infrastructure upgrades to ensure they could both retain budget levels and operate in a lower-budget environment in the future." As a result, storage spending in the near term is expected to slow.TIP's forecasts for storage are reflected in cuts in projections for overall IT spending from other research firms. Gartner, for example, has scaled back its earlier 2009 IT spending growth predictions. The worldwide economic problems could, in a worst case, result in a decline of 2.3 percent in IT spending, rather than an increase of 5.8 percent that the research firm had previously predicted.

IT spending is somewhat insulated from economic fluctuations and won't experience more severe cuts this year and next because business technology has become essential to running all parts of the business, Gartner said. Plus, at large companies, major technology purchases are part of multiyear plans that are hard to cut quickly. Also, IT spending patterns tend to trail overall economic changes by a half year or more.

And IT managers now do more than just buy and deploy technology, Gartner said. "CEOs want their executives and managers to be advisers and counselors, not just great implementers of directions given to them," Gartner analyst Peter Sondergaard said in a statement. "What they want now most of all is agile leadership. Leadership that can guide us through simultaneous cost control and expansion."

Forrester Research also reduced its IT spending forecast for 2009 to $606 billion, an increase of 6.1 percent over this year. That is a drop from the 9.4 percent growth in IT spending Forrester had projected for 2009 earlier this year.

"There's been a delay of the pain," said Andrew Bartels, VP and research analyst at Forrester Research. "Instead of the pain being over and done by next year, it'll be prolonged into next year."That will probably apply to storage as well. While "enterprise storage is less discretionary than many IT categories," Jayson Noland, an analyst with financial services firm Robert W. Baird, wrote in a note to clients, some initiatives that don't have a clear return on investment may get pushed back. Still, while enterprise storage isn't immune to a recession, he called it "more resilient to spending cuts and generally more defensible than many categories."

While that may be true, storage spending is getting hit by other factors. A big issue, said TIP's Stevenson, is low utilization rates. For block storage, he said utilization has dropped from an average of 74 percent during the past two years to 66 percent, the lowest since 2003. For utilization of network-attached storage, it was around 69 percent a year ago and is now down to 58 percent.

"Once business confidence returns, the cost of building new applications will be lower, due to the available capacity that can be used without purchasing. However, if confidence does not return in the near future, the spending outlook for the next three quarters could be lower, given that, in a slower-growth business environment, there is enough excess capacity that no additional purchasing would be necessary," Stevenson said.