IT Spending Slows Amid Recession Worries

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With fears of an economic recession, Townsend Networks CEO, Peter Gilberd offers a fresh look at the secondary marketplace for network hardware as a way of coping with IT budget cuts.

During these challenging times, CIOs may be forced to evaluate their existing resources, increase the productivity of their current networks or meet the escalating demands by purchasing high-quality, pre-owned network hardware at prices that won't break the budget during these austere times.

With fears of an economic recession gaining momentum in company boardrooms, many CIOs are facing difficult decisions in order to meet scaled back budgets. Some IT departments are reducing costs by halting additional new hires and in some cases requiring layoffs. However in a landscape of economic uncertainty, these actions may not be enough. Unfortunately, the view from the C-suite is that IT is predominantly a cost-center and when times are tough CIOs are told to tighten budgets or, in extreme cases, suspend new projects and infrastructure upgrades.

According to a survey conducted by InformationWeek, almost 72% of IT professionals questioned said that their department has been asked to either "not increase" or "cutback" their IT budgets in the upcoming cycle. This move to control spending necessitates a delicate balance for CIO's struggling to stretch available resources and maintain the security and performance of their networks. Recession or not, network performance will remain the paramount concern of IT chiefs, especially since networks continue to take on increased duties, such as carrying video, voice messages and other high-speed applications.

With companies hesitant to make investments in non-essential network improvements, manufacturers have seen this drop in demand affect Q4 sales. According to a Dell'Oro report issued in February 2008, the worldwide enterprise router market saw a "sharp decline" in the fourth quarter of 2007 due to weaker demand in North America. For industry leader Cisco Systems, which owned 85% of this market over the last year, this is a signal for concern.

According to an ABC News report, Cisco's shares have fallen 20 percent since early November, when it posted earnings for Q1. Eager to ease investor fears, CEO John Chambers said the company was "hit by dramatic decreases in orders from U.S. banks" and that he expected U.S. enterprise demand to remain "lumpy" for a while."

While the news of a recession elicits panic in some, much like eager real estate prospectors in the current mortgage crisis, other companies in the networking space are poised to profit from an environment of cautious spending. For companies like Townsend Networks, a leading network equipment reseller, the current economic climate offers opportunity for growth.

"There's no question part of our growth over the last six months is due to the growing need IT organizations have to save money in this uncertain economic period," notes company president Peter Gilberd. "The demand for routing and switching equipment is still incredibly strong and we are helping our customers get the most from their IT budget. I think the used market will be increasingly attractive for technology-driven companies over the next 18 months."

Coupled with the continued commitment to controlling IT costs, companies are becoming increasingly aware of the value of their legacy equipment. According to Gilberd, many organizations have historically overlooked the value of their surplus equipment. "It is only recently that the secondary market has matured to the point where CIOs are beginning to appreciate the trade-in value of their legacy equipment and that we provide a quick and predictable liquidity event" said Gilberd.

However, accessing the market value may more work for some than anticipated. Services like eBay, which often have numerous listings and asking prices for used networking hardware, may actually make it more difficult network admins to arrive at an optimal asking price. "For most companies," Gilberd noted, "the time required to research and evaluate the current market value of end-of-service gear outweighs the potential returns. I am never surprised at the genuine excitement I hear on the other end of the phone when I ask clients if they have any equipment to SELL! But in actuality, the secondary market thrives on this very principle and one company's junk is another smaller company's core device."

With no clear end to the current economic uncertainty, companies are being forced to prioritize expenditures and make careful decisions about their network needs. Gilberd added, "During these challenging times, CIOs may be forced to evaluate their existing resources, increase the productivity of their current networks or meet the escalating demands by purchasing high-quality, pre-owned network hardware at prices that won't break the budget during these austere times."

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