The grim economic outlook has caused CIOs to withhold budgets, ditch new projects and cut back on contractors, according to technology analyst firm Longhaus’ Australian Technology Index for the first quarter of 2009.

(Credit: Longhaus)

The peak for the local IT industry was 2007, driven largely by hardware refreshes that were part of what Longhaus has called “Y2K-related asset refreshes”. With that period largely over, and the deteriorating global economy, work is expected to dry up.

The index is based on a proprietary model used by Longhaus to measure the health of the Australian ICT industry. It measures demand forces, including ICT spending and importing, supply factors (including venture capital), strength of vendors as indicated by market value and employment capacity, and consumer factors such as internet subscription rates. It also uses heuristic views from Australian CIOs.

Uncertainty had caused 26 per cent of the 69 CIOs, who represent organisations with at least 200 employees, to withhold on average 12.5 per cent of their budgets, Longhaus reported.

That uncertainty would also mean IT contractors will be cut back due to new projects being shelved — and exacerbated by moves within the Federal and Queensland Governments to cut back on the use of more contractors, who can be more expensive than permanent staff.

“Longhaus believe that the lack of new investments in infrastructure technologies and a stalling of ICT projects is the likely cause behind the proposed reduction in contractors,” it reported.

However, the outlook for those seeking permanent work was better, with 67 per cent of CIOs saying they expected to boost the size of their permanent workforce.

The index has echoed concerns of Australian IT outsourcing companies regarding new projects as funding and new business opportunities dried up. ASG chief executive, Geoff Lewis, said the company would most likely not bid for new “discretionary spending” projects, preferring to focus on multi-year infrastructure and core business systems management deals.

“This is a very serious recession and will have serious ramifications in the financial arena,” said Lewis. “Organisations will be very scrutinising of capital spending and will be looking for savings in their operational budgets,” he recently told

The downturn, however, could present a good opportunity for CIOs on the skills front, according to Longhaus.

“This is the time for savvy CIOs to go on a recruitment drive. However, CIOs should be forward-looking in their appraisal of the right permanent skills and opt for applications development and business analysis above core infrastructure headcount,” Longhaus said in the index report.

The hunt for permanent skills in the current climate has become easier, according to Peter Kazacos, chief executive of P K Business Advantage and founder of Telstra’s IT services business Kaz, who said his company had not required recruitment services for months.

“There are a number of recruitment firms that are about to hit the wall. We haven’t used a recruiter in months, simply because we don’t have to,” he said.

But the question that has eluded many analyst firms is exactly how deep and long the downturn is expected to last. Gartner earlier this year put forward widely varied estimates of how the technology sector would weather the storm.

Head of research at Gartner Peter Sondergaard was certain that IT budgets would slow in 2009, but dared not answer how long for. “Your guess is as good as anybody else’s,” he said.

But Longhaus has estimated the downturn affecting the Australian IT industry would, based on past downturns, be stemmed by 2010. “The next wave of hardware renewal in Australia is set to begin in 2010,” it said.