For the first time in history, IT spending in the U.S. Securities Industry is expected to decline over a two-year clip, according to a report by Celent Communications, a Boston-based research firm. In the report, Celent describes this as "dramatic for the simple reason that the securities industry has never before seen a year-on-year decline in its IT spending levels." Although individual institution's budgets may have been trimmed two years running, this type of decline has never occurred at the industry level. As a matter of fact, IT year-on-year spending has increased continuously since the 1970s - even following the stock market crash of 1987 and during the recession of the early 1990s.
Celent predicts that spending on technology services will decline - accounting for only 34 percent of total external spending this year, where services prior to the economic downturn comprised as much as 40 percent of IT budgets.
Celent attributes this to the economic downturn, which has led securities firms to cut back on contractors and consultants, reducing staff as a last resort.
Celent defines service providers as contractors, ASPs, outsourcers, systems-facilities managers, etc., as well as third-party software-application providers.
Firms are now focusing on infrastructure and core processing. Celent predicts that spending on hardware will increase and account for 22 percent of total industry spending.
New investment during 2002 amounted to 38 percent of total spending and Celent predicts it will drop to 30 percent during 2003, as replacement investments following Sept. 11 are concluded.
It's no surprise that the research firm sees 2003 as a year when firms will be slow to embark on new products. However, it predicts that budgets for 2004 will reflect growing optimism.