Lehman Brothers invested in IT despite credit crunch
It spent $309M on technology and communications in the past quarter — Computerworld UK) Lehman Brothers Holdings Inc. was boosting its investment in IT even as it headed toward bankruptcy. — In the quarter ended Aug. 31 …
Context & Ripple Effects
Lehman's late-August technology and communications outlay fits a broader 2008 picture in which some companies were still spending on technology during the downturn. But its bankruptcy arrives as coverage had already flagged Wall Street's meltdown as a potential hit to the technology sector, making the durability of financial-industry IT budgets—not their recent size—the key issue.
First-order effects
- Lehman's bankruptcy puts continuity of its IT and communications spending in question, affecting the suppliers and internal teams dependent on the firm's budget.
- The $309 million quarterly outlay shows that technology investment did not insulate Lehman from the credit crisis or establish that the spending could continue.
Second-order effects
- Technology vendors serving Lehman and other Wall Street institutions must treat reported budgets as less reliable indicators of contracted demand when their customers' financing is under stress.
- Other financial firms facing the same turmoil gain a clear incentive to scrutinize discretionary technology and communications commitments.
Third-order effects
- The episode points to a more balance-sheet-sensitive enterprise IT market: spending can remain visible until financial distress forces rapid reassessment of customer commitments.
The trend: The credit crisis is exposing the gap between a firm's reported technology spending and its ability to sustain that spending when liquidity fails.