IT & Storage Spending: Reading the Tea Leaves

The last months of 2007 were marked by ongoing predictions about declines in IT spending. But recent market research news is taking the edge off some of the gloomier speculation.

There are signs of robust vertical markets for IT wares, including consumer storage, broadcasting, and medical imaging. And there's reportedly no slowdown in U.S. military spending on IT and storage, as reported by analyst firm Input just before Christmas.

There's also anticipation of strength among SMB buyers, evidenced in EMC's latest Clariion announcement. And in a recent poll, many B&S readers reported no decrease in what they'll spend this year.

Is this all just wishful thinking? We'll go out on a limb here and say it doesn't look like it. Sure, storm clouds linger over the U.S. economy. Still, despite plenty of unease about what 2008 will offer in terms of IT spending, some green shoots sprang up this week from the frosty economic landscape.

Yesterday, for example, IBM issued preliminary results for 2007, reporting annual revenues of $98.8 billion, up some 8 percent on the prior year. Boosted by strong international sales, the vendor also reported fourth quarter revenues of $28.9 billion, a 10 percent hike on the prior quarter.The quarterly revenue figure topped Wall Street's estimate by more than a billion dollars -- not bad at a time when the economic doom-mongers are going into overdrive. Citing "the magnitude of IBM's outperformance" in the quarter, Goldman Sachs analyst David Bailey even predicted a rebound in the vendor's shares.

"Although the 2008 outlook for tech remains uncertain, we view IBM as defensive in the current environment," wrote Bailey in a research note yesterday.

With QLogic also pre-announcing a positive set of results last week, other analysts feel that, at least initially, the signs are good for storage vendors.

"For the most part, it appears IT hardware vendors have met Q4 targets," wrote Pacific Growth Research analyst Kaushik Roy, in a guidance note yesterday. "We believe EMC could report revenues better than our estimate of $3.62 billion [and] it appears VMware continues to beat its own targets."

With NetApp and Brocade also tracking well for their January quarters, Pacific Growth believes that LSI and Emulex also made their fourth quarter targets."Despite a weakening U.S. economy and choppiness in the financial services vertical, CQ4 seems to have ended well for most of the enterprise storage companies, possibly because of the year-end budget flush," wrote Roy.

The good news in storage could affect the overall IT spending profile. Whereas storage may not have been seen as a top-level budget item some years ago, the last couple of years have seen its profile rise dramatically. After straining to comply with Sarbanes-Oxley and HIPAA, for example, users have been slammed with additional compliance pressures in the shape of the FRCP amendments, all of which are storage hungry. At the same time, Web 2.0 is also driving major storage deployments .

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