The Tech Fallout from the Wall Street Crisis

North American financial companies will slash their IT spending 27.3 percent to $17.6 billion next year, down from $24.2 billion in 2007, according to updated projectionsfrom the Tabb Group, which tracks technology on Wall Street. The vast majority of that decline will be spending reductions due to the failures of Bear Stearns and Lehman Brothers and the sale of Merrill Lynch, Tabb predicted.

Cash is king for Silicon Valley's biggest companies, according to Om Malik, who touched base with the valley's brand names. Cisco has $26 billion in cash, while Google and Microsoft are flush as well. Among companies with a high debt load, Level 3 (LVLT)  says it has no major debt payments until Sept. 2009.

HPC Wire last week raised the possibility that the crisis could spark additional investment in high performance computing (HPC), particularly for number-crunching in risk management. "Given the likelihood of regulatory changes for the financial services market, along with the obvious need for better risk assessment and management, higher productivity, greater cost-efficiency and more advanced global economic modeling, it seems all of the right drivers are there," writes Diane Lieberman.

Earlier this year in our Crunch Time series we reported anecdotal evidencethat the trend noted by HPC Wire might be developing. : The troubles on Wall Street could actually boost demand in one key area: risk management. Firms that were surprised by larger than expected losses in their subprime mortgage holdings appear to be increasing the computing power dedicated to analyzing the relationships between complex financial instruments. “There has also been demand from Wall Street firms that are looking to expand their risk management computational capability in this environment,” said Digital Realty CEO Michael Foust. “That’s driving need for more space on the data center side.”

An alternate view is offered by Geva Perry from GigaSpaces, who argues that existing HPC-driven risk analysis models either didn't work or were ignored. Geva argues that cloud computing should be the beneficiary of the Wall Street crisis, as tighter budgets shift apps from in-house HPC installations to the cloud. I'm already on record with my skepticism that this shift will happen soon.

Will Wall Street's problems make Europe a better place for companies looking to expand ther data centers? Tom Militzer at The WHIR blogs thinks so .... although Europe is also experiencing bank failures. "The one thing I am convinced from last weeks Hosting Summit, is that the data center and hosting sectors are fundamentally good, if not excellent," Tom adds.