Industry IT spending may outpace others’

While spending on technology in the financial-services sector won’t reach double-digit growth next year, it’s likely to outpace growth in spending by many other big sector groups.

Banking and other financial-services companies are likely to boost their technology budgets by 7.1% in 2008, according to preliminary data provided by market research firm Gartner Inc. of Stamford, Conn.

“You’re going to see continued spending in software and services,” said Linda Tracy, senior consultant with Gartner’s Benchmarking Analytics IT Key Metrics Data section.

“[Information technology] de-partments in the financial-services domain are constantly dealing with an increased volume on their infrastructures, whether that’s message data or trade data or whatever,” she added.

Spending by banking and financial-services (excluding insurance) companies is projected to outpace the 4.9% increase ex-pected by drug companies as well as the 2.9% increase by insurers and the 6.3% increase by manufacturing companies, according to Gartner.

“Versus other industries, financial-services spending remains biggest in absolute terms, compared to other industries, and is also in the top quartile for growth,” added Peter Redshaw, a research director with Gartner based in Egham, England.

Overall, U.S. companies are expected to spend $488.5 billion on technology next year, up 5.2% from $462.9 billion in 2007, provided the economy manages to avoid a recession, according to research firm IDC of Framingham, Mass.

Meanwhile, Forrester Research Inc. of Cambridge, Mass., projects that U.S. companies will spend $820 billion on technology, a 5.8% increase from $775 billion in 2007.

Spending by financial services companies will total $126 billion, up 6.7% from $118 billion, said Forrester.

“Spending in the financial services sector overall has been fairly robust,” said Forrester analyst Andrew Bartels.

Mr. Bartels downplays concerns that the subprime-mortgage crisis will significantly affect technology spending by financial services companies.

“We think that overall, only 10% to 20% of the financial services industry is exposed to the subprime issue directly,” he said.

Nevertheless, most analysts agree that the problem with subprime mortgages will at least put a dent in technology spending.

Growing unease in the credit markets is also likely to hamper spending on technology, said Anna Toncheva, an economist and program manager with IDC’s worldwide information technology markets group.

IDC is looking at several possible scenarios to try to come up with a better prediction of technology spending in 2008.

“The absolute worst case will be a less than 1.5% year-over-year growth rate,” she said. “We have a different forecast that looks at spending intentions from frontline business managers and they are much more leery than [chief information officers].”

Virendra Singh, a senior economist at West Chester, Pa.-based Moody’s Economy.com is also leery.

“For companies to upgrade software and hardware, it will be more difficult at least until the end of next year,” he said.

Much of next year’s spending will be targeted toward particular areas that firms deem crucial.

Among financial services companies — particularly those that deal with financial advisers — look for investments aimed at improving the efficiency of already installed internal software systems as well as systems accessed routinely by third parties, said analysts.

Referred to in the technology industry as “software optimization,” such efforts improve the bottom line by allowing different software systems to speak to one another. Security and risk analysis are also key areas for spending within the financial services sector.

“Many of the same hot topics in 2007, including security, data centers and IT optimization, will require significant spend[ing] in 2008,” said Michael Conley, senior vice president of emerging technologies at Forsythe Solutions Group, an IT consulting firm in Skokie, Ill.

Overall, Forsythe is projecting a 5% to 8% increase in technology spending by U.S. companies in 2008.

“We are all waiting to see if the other shoe will drop in the economy overall,” Mr. Conley said.

Unlike such industries as pharmaceuticals or manufacturing, financial services companies have little leeway when it comes to cutting back their spending on technology.

For financial services companies, “information is all they’ve got, and information is their commodity — it’s not so easy to say, ‘Hold off on that technology spend[ing],’” he added.

Davis Janowski can be reached at [email protected].