Sept. 26 (Bloomberg) -- Microsoft Corp., Cisco Systems Inc. and computer makers may lose $4.3 billion in orders next year as the credit crisis forces financial companies to cut spending to the lowest level since 2000.

Finance-industry technology outlays will sink 20 percent to $17.6 billion next year from an estimated $21.9 billion in 2008, said Larry Tabb, founder of Tabb Group in New York, which tracks securities firm budgets.

Lehman Brothers Holdings Inc.'s bankruptcy and Bank of America Corp.'s purchase of Merrill Lynch & Co. mark the beginning of stark spending cuts amid plans for a $700 billion government bailout for Wall Street. More than 20 percent of global technology spending comes from the finance industry, said researcher Gartner Inc.

``This is game-changing,'' said Joanne Correia, an analyst at Stamford, Connecticut-based Gartner. ``People are going to stop new software deployments. They'll cut in the applications space. In PCs and servers, everyone will stop putting in new hardware.''

Lehman's bankruptcy and the subsequent takeover of some units by Barclays Plc may reduce the firm's budget for computer spending to $1 billion next year from $2.5 billion as the London- based bank eliminates redundant systems, Tabb said.

No Need for Two

The combination of Merrill with Charlotte, North Carolina- based Bank of America will bring $1.5 billion to $2 billion in technology-spending reductions, he said. While both have U.S. equity-processing systems, the firm will need only one, he said.

``It would make sense just to eliminate the technology and the resources that were used for these businesses,'' Tabb said in an interview yesterday.

Remaining investment banks may pare back in asset securitization, he said. The process, pooling loans and converting them into packages of securities, is at the center of the mortgage and financial collapse as banks created risky financial products leading to more than $500 billion in writedowns.

The financial crisis grew yesterday when Washington Mutual Inc. was seized by the government and sold to JPMorgan Chase & Co. in the biggest bank failure in history.

Additional mergers could affect companies' technology spending, said Suresh Kumar, the chief information officer of Pershing LLC, a subsidiary of the Bank of New York Mellon Corp. that oversees $940 billion in assets.

Budget Cuts

``The more consolidation that you have, the more I would see potentially a reduction in the overall budget that you would need to do the same things,'' he said.

It's too soon to know what cuts Bank of America might make because the firms are still separate and no decisions have been made, spokesman Chris Feeney said. Barclays spokesman Peter Truell declined to comment.

``You're absolutely going to see a slowdown in some of that spending,'' John Hennessy, president of Stanford University and a director at Cisco and Google Inc., said in an interview in San Francisco yesterday. ``It's inevitable, given what's happened.''

Terry Alberstein, a spokesman for San Jose, California-based Cisco, declined to comment yesterday. The company gets about 3 percent to 4 percent of annual revenue from the U.S. financial industry.

Technology spending slowed even before the financial crisis worsened over the past two weeks. Almost half of large companies have cut their budgets this year to cope with the slump, according to Forrester Research Inc. in Cambridge, Massachusetts.

Sun, IBM

Sun Microsystems Inc. and International Business Machines Corp. may be two of the companies with the most at risk, said Wachovia Capital Markets LLC analyst David Wong in New York.

IBM gets as much as 30 percent of sales from financial- services companies and Sun's Unix server computers are at ``particularly high risk,'' he said.

``Sun is carefully watching the state of the financial- services industry,'' spokeswoman Kristi Rawlinson said in an e- mailed statement. ``Our focus is on supporting our customers as they work through difficulty in the markets.''

IBM spokesman Ian Colley declined to comment.

Microsoft is the biggest software seller to U.S. financial- services companies, which accounted for 22 percent of its sales last year, Gartner said. IBM's software group derived 30 percent of revenue from financial services and Oracle got 18 percent, according to Gartner.

`Challenging Economy'

``This is a challenging economy,'' Jagdish Rao, New York- based Citigroup Inc.'s information chief, said in a Sept. 5 interview. ``In the entire financial-services industry, there's a tightening of technology spending. The rate of growth has slowed down considerably.''

He wouldn't provide figures for Citigroup's spending and declined to comment further yesterday.

Given the number of programs that U.S. corporations buy, ``it would be reasonable to expect there will be consequences,'' Steve Ballmer, CEO at Redmond, Washington-based Microsoft, the largest software maker, said in an interview this week. ``Nobody knows exactly what's going to happen.''

Lori Galor, first vice president at First State Bank Shannon-Polo in Polo, Illinois, said the crunch would probably impact spending at the bank at some point, though it hasn't cut back yet. Hardware purchases such as new laptops would be the first item on the list if the budget is reviewed, she said.

``Everybody's tightening the ropes,'' said Galor, whose bank has three branches in Illinois. ``We will certainly take a harder look at any unnecessary spending.''

To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

Last Updated: September 26, 2008 15:53 EDT