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IT spending lull continues post-stimulus

Data center spending remains in the doldrums, with some bright spots in virtualization and related infrastructure.

When the economy went south more than a year ago, many data center budgets went on the chopping block, and most IT shops still struggle with fewer staffers and less money to add much-needed infrastructure -- a trend that is expected to continue until next year.

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Sun, Sparc struggle in economic downturn
According to IDC's March 2009 server forecast update, the second quarter of this year will be the worst in terms of server sales, with new-unit sales falling 23% year over year. In fact, IDC doesn't expect to see positive growth in the server market until the fourth quarter of 2010, and only 1.5% at that.

"The [server] markets here in North America and Europe are facing the biggest challenge near term, and all regions … are expected to be sharply negative in 2009," said Matt Eastwood, IDC's vice president for enterprise platform research.

Even the biggest of the big have famously tightened their belts: Recently Google and Microsoft cut spending on their own data centers as a way to reduce costs in a tough economy. Other companies have followed suit by retrenching on server purchases.

The CTO of a large Midwest-based financial services firm said his company cut back on IT spending and won't start spending big bucks on IT anytime soon.

"We have managed to cut out IT spend by roughly 12% this year and will still deliver more to the business than last year," he said via email. "The increased discipline and attention to detail -- plus medium-term strategies like standardization, consolidation and virtualization and a shift to open source from proprietary software architectures -- will let us keep spending very close to flat for the next five years."

Tighter IT budgets across the board
Because of the economy and resulting IT pushback, some vendors are making "major price concessions for forward commitments at current spending levels -- three to five years of price locks -- and we have only just started to go after support and maintenance costs," he said.

Both HP and Dell have cut server prices , for example. According to Forrester Research's current report on enterprise hardware buying trends, more than 90% of companies will purchase x86 servers over the next year. Most companies that intend to buy servers are either replacing old hardware (76%) or need the systems for new applications (52%).

Case in point: An application engineer with a major document management technology company said his IT department can purchase only absolute necessities. "There are no plans to spend any more money than what is necessary to fix or replace failed hardware, until sales pick up and looked to be sustained over a period of time," he said.

In companies that will spend, a clear proof of return on investment (ROI) is required, and CIOs now look at ROI in terms of months instead of years, said Aaron Sawchuk, the CTO and co-founder of Rockland, Mass.-based ColoSpace, which oversees the infrastructure installations for clients at six New England facilities.

"There is definitely funding available within almost every one of our customers' budgets, but the first two questions asked are, 'How much will it save, and when will the cost reductions be seen?'" Sawchuk said.

Even small expenditures now require higher-level signoff. Purchases that a line-of-business manager could have made previously now get kicked upstairs to a CFO or CEO -- even in small companies, several IT pros said.

In addition to a short-term ROI, CIOs expect higher efficiency from the equipment they buy, said the financial services CTO. "Every CTO and CIO I talk to is doing the same thing. There will be a brutal shakeout in the less efficient technology vendors as this process rolls forward."

When it comes to ROI and efficiency, virtualization software seems to top physical servers on IT shopping lists, and a number of IT pros said the first things they'll buy when their company budget allows is virtualization related. Some said they want more virtualization tools, such as disaster recovery software, along with more storage and more bandwidth to support their virtual infrastructure.

Sawchuk said there is a much heavier focus on virtualization than on server hardware in his facilities. "In general terms, we continue to see customers making purchases that can be directly attributed to cost savings, [especially] within the virtualization space, where they can reduce the overall data center footprint," Sawchuk said. "We are seeing firms downsize their office footprint and, to a large degree, going virtual."

But passage of the $787 billion economic stimulus package may trigger IT spending in certain industries. IDC's new report on capturing funds from the American Reinvestment and Recovery Act shows that over the next five years, an estimated $101.2 billion will be used for technology spending, especially in the health-care and energy sectors, which will receive incentives and tax rebates.

Attesting to that, Sawchuk said clients in health care are adding to their data center infrastructure.

"If you look specifically at the stimulus plan, we are definitely seeing an increase in business in the health-care space," Sawchuk said. "We have seen a marked increase in the number of e-health related startups, and existing biotech and informatics firms are launching new initiatives to take advantage of federal funding."

Others think once it's sorted out, the stimulus will similarly spark technology sales into schools, state, federal and local government organizations.

To hell with servers and software, we want people
With layoffs, or "downsizing," comes more work for fewer IT staff. Sawchuk said this trend has led to a higher demand for managed data center services, as companies outsource the work their slimmer IT departments can't handle.

But IT pros in companies that aren't outsourcing IT operations want to see manpower added back into their data centers as soon as possible.

One Virginia-based system administrator said he would like to see his company allocate more funds to retain employees, because training new people requires too much time and money. Another IT professional said talented employees lead to a larger ROI than any software or hardware bought from a vendor.

Unfortunately, if a company sees that IT is being handled alright with fewer employees, it won't see a need to hire again. "Even if the economy turns around, once the business sees we can run with fewer dollars, it will be that much harder to get them back," said a Canada-based IT administrator.

Barbara Darrow contributed to this report.

Let us know what you think about the story; email Bridget Botelho, News Writer.

Also, check out our data center blogs: Server Farming, Mainframe Propellerhead, and Data Center Facilities Pro.

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