Corporate IT departments are increasing their spending on hardware and cloud services, but not on new hiring in this weak economy.
These trends are all revealed in government data, surveys and in earnings reports. Cloud-based services, in particular, are expected to see a spectacular market growth this year.
IDC is forecasting that public cloud services revenue in the U.S. will grow nearly 24 per cent, from US$14.2 billion in 2010 to US$17.6 billion in 2011.
IDC’s prediction is backed up by surveys of corporate IT organizations that are seeing accelerating interest in cloud services — so much so that one research firm compared it with the late 1990s’ e-commerce fever.
Businesses are increasing spending on hardware as well and making up for lost ground during the recession. Dell this week reported a revenue increase of five per cent, to nearly US$15.7 billon, helped by sales to enterprises. IBM reported strong gains last month as well.
But is this spending helping IT hiring? Not yet. According to U.S. government labor data, unemployment among IT professionals is exceeding other professions. Unemployment for computer programmers, for instance, finished at 5.7 per cent last year, compared with 2.2 per cent in 2007, according to government data.
“The nature of the way in which the economy is picking up is very different than it’s been in the past,” said Richard Pople, global IT practice leader at the research and consulting firm Hackett Group.
Hackett is expecting IT employment in corporate IT departments to decline slightly this year, by 0.4 per cent, after declining 1.1 per cent in 2010 and 7.3 per cent in 2009. Its projection is based on its annual survey of U.S. and European companies with revenues of US$1 billion or more. For this survey, 185 companies responded.
Companies have been consolidating their IT resources, which is also spurring hardware buying. A goal is to make their IT organizations more flexible, and by doing so gain capability to use resources globally, whether it is in the cloud or offshore, Pople said.
In the Hackett Group survey, IT firms were asked to rank their strategic priorities, and cloud computing ranked No. 4 this year, with 59 per cent respondents citing it as a priority. Last year, cloud was ranked 10th out of 11, with only 27 per cent of respondents identifying it as a critical priority.
Pople compared the rapid increase of cloud in this survey to what happened when businesses interest in Internet services took off. “We saw the same sort of shift in 1998-99, when companies were then trying to figure out of to leverage the Internet,” he said.
John Longwell, vice-president of research at Computer Economics, said he is also expecting IT hiring to remain flat this year, except at large companies, where it expects to see two per cent staffing growth. Computer Economics defines large firms as those that have IT operational budgets of more than US$20 million, which translates into a US$2 billion manufacturing concern or US$1 billion in the bank.
While some companies will be adding staff, very few plan further reductions,” Longwell said. “We don’t anticipate that IT hiring is going to be robust, but the outlook for IT workers is improving.”
“Jobs are starting to open up — we are seeing that first in demand for contract labor, an extension of work hours, and use of service providers,” he said.
Longwell said that the number of organizations that are turning to software-as-a-service (SaaS) is rising rapidly. About 36 per cent of the firms they surveyed have SaaS in place, which is up from 24 per cent in 2009.
Longwell said that the use of SaaS is a form of outsourcing , and enables companies to reduce some of their capital and staff support. But, “I don’t think you can blame the current employment outlook on SaaS,” he said. “It’s part of the picture.”
Interest in outsourcing is growing as well, according to Hackett’s data, something that seems consistently obvious earnings reports among offshore firms in India.
Indian offshoring giant Infosys, for instance, which receives about 65 per cent of its revenue from North American customers, recently reported year-to-year revenue growth of nearly 29 per cent in its most recent quarter. It employs 127,779, including a net addition of 5,311 employees in its most recent quarter.
But a survey by the professional services firm BDO USA, released Thursday, found that of CFOs at 100 tech firms in software, hardware, telecommunications, among others, only 35 per cent of the U.S. tech companies were outsourcing services or manufacturing to companies outside the U.S.
That finding represents a 43 per cent decrease from the 2009 high, when 62 per cent of companies were outsourcing.
“The loosening of the U.S. labor market is making it more affordable for companies to do this work at home,” said Don Jones, a partner in the technology and life sciences practice at BDO. “Given the language and cultural barriers in popular outsourcing destinations in Asia, including China and India, some companies are choosing to do away with these services now that they can afford to keep them in their backyards.”
Shifting the work back to the U.S. can help cut down on customer service complaints and can improve the overall quality of service, Jones said.
High turnover and infrastructure issues in India and China are also making it difficult to outsource, he said.
