Saturday, May 23, 2009

The Collapse In IT Spending Is On Its Way

We wrote on here two years ago that IT spending in the U.S. economy was highly concentrated in the finance sector and technology capex was going to suffer significantly when the Wall Street bubble collapsed. So far profits have held up reasonably well. But they won't. As an example, we have cited IBM's downside price target to be in the mid $50s or high $20s from a cycle peak of $130.

We could easily see profits at IT-related firms literally collapse. In fact, upwards of 50-70% of IT profits are finance industry related. And much of the IT investment was used to build bubble businesses where future IT investment will likely disappear. That means forever. Yesterday, Citigroup announced it is slashing technology capex. This will not be an isolated incident as the entire finance industry heads for a very hard landing.
posted by TimingLogic at 7:06 AM