Gauging the Economy Impact on the Data Center
October 09, 2008

By Staff
Appeared in Data Center Journal

The economy is front and center on almost any and every news outlet not just here in the US, but globally. The impact that the economy has on our every day lives from home to business budgets keeps us engaged on where things are heading. In the data center community we keep close tabs on IT budgets to give us a sense to where the industry is heading.

The rise and fall of an IT budget receives the most attention when gauging the data center industry for good reason. The changes and demands that IT imparts on the data center drive it.

Data center spending is difficult to properly gauge based on facility budgets. In most cases when IT is impacted by facilities it is the IT budget that helps set things straight. Examples include lack of power, cooling or space for new IT equipment.

Facility budgets are mainly in place to maintain an existing facility and seldom include the change demands from IT. It is this reason that many argue that the data center facility budget should be included into the IT budget.

In a recent poll conducted on the Data Center Journal we found that over 83% of end users feel that the data center facility budget should be included into the IT budget.

If we gauge the data center industry on IT budgets then what is the state of IT spending?

According to Frank Scavo, president of Computer Economics, an IT research and advisory firm based in Irvine, California,  "The most recent Computer Economics IT Spending, Staffing, and Technology Trends study found a general, though perhaps not dramatic, softening of IT spending for 2008, with median annual growth in IT budgets falling to 4.0% from the previous year's 5.0%. However, IT decision makers also decidedly lack confidence in their spending plans: 25% expect to under spend their approved budgets, while only 12% expect to spend more. As we move into the second half of 2008, we believe IT managers have reason to remain cautious in light of the most recent U.S. government economic statistics on economic output and corporate profits."

According to lead analyst Andy Woyzbun with Info-Tech, an IT research and advisory firm based in Ontario, Canada, “we are seeing a general decline in optimism regarding the economy from our customers, but most of our clients are not changing their data center and IT activities.”

“From an IT and data center perspective, what we have seen in the past year is organizations not leaning on IT to cut their budgets mainly because organizations see the importance of IT to the business” notes Woyzbun.

Mr. Woyzbun noted that he did believe that IT departments will be impacted in degrees depending on the business sector. It is more likely that the IT departments of retail, manufacturing, financial and real estate organizations will be impacted the most.

We broadened our view at the impact of the economy on data center spending and inquired from several product manufacturers that service the data center community as well as design engineering firms.

Overall, most data center product vendors have indicated that they have not seen any slow down in orders or purchases. Most vendors do remain cautious and believe that IT departments are watching like the rest of us and waiting to see how deep the current economy may impact their organization including their own budgets.

In a quote provided by Syska Hennessy Group, a design engineering firm that specializes in mission critical and data center facilities states, “We believe that the unsettled US economy will impact sectors of the data center industry in different ways during the remainder of 2008 and into 2010. We anticipate slower demand in the financial and financial services sectors as clients combine, rearrange and strive to increase operating efficiency. We foresee steady demand in the communications, technology and healthcare industries as clients seek to provide capacity and adapt to technological changes. We are not as optimistic about the retail and manufacturing sectors because of the chilling effect of the unsettled economy on consumer spending. On the whole we are cautiously optimistic and think that close attention to the economy is advisable.”

While interviewing attendees at the fall Data Center World presented by AFCOM in Orlando, Florida we found that most attendees were also cautiously optimistic.

At the time of this article being written the global markets are seeing a drop while governments besides the United States step in to help their own failing financial and lending markets.

In the coming months a new president will be elected in the United States and the retail markets will keep their fingers crossed as the holiday season closes in. Both of these events will likely create more stir in the global economy.

There is one thing that is clear; the uncertainty of the economy has most sitting back and watching with cautious optimism. Let’s keep our fingers crossed for better days sooner than later.