Although the IT industry remains locked in its worst slump ever, there are some signs that a slow, but measurable, rebound has begun. Giga Information Group, IDC, and In-Stat/MDR have all weighed in with their views on IT spending. Here’s a look at what each has said recently.
Giga: Small gains
In a recent brief, "US IT Industry is Showing First Signs of Revival, " Giga Information Group reported a "rise in spending on computer hardware and network equipment, but software spending continues to slump."
The brief also claims, "The seeds are now planted for a tech spending recovery to occur in the second quarter but it’s going to be a weak quarter, with year-over-year growth in the 4 percent to 5 percent range for IT investments in hardware, software, and network equipment in the second half.
“There will be flat to negative spending on salaries and benefits (due to layoffs) and on IT services, which will offset hardware increases in part and keep overall IT spending in the 2 percent to 3 percent range for 2003."
IDC: Slow growth but investment
IDC, one of the most prolific prognosticators of spending trends and market sizes, predicts that U.S. IT spending will be $372 billion in 2003, an increase of only 1.5 percent from 2002. During the next five years, IDC projects a modest compound annual growth rate of only 4.9 percent. This would put the U.S. IT market at $467 billion by 2007.
IDC also examined how IT spending in the United States varies by vertical market. Its key findings include:
- The manufacturing and financial industries account for almost half of the IT opportunity.
- The biggest increases will be felt in the government, discrete manufacturing, and resource industries. With its dedication to technology investment, ongoing e-government initiatives, and homeland security issues, government will continue to exhibit positive growth throughout the forecast years.
- The largest vertical markets for information technology reside in discrete manufacturing, banking, government, and services and are driven by the steady profitability in biopharmaceuticals and medical device manufacturing, as well as the need to replace legacy applications with packaged applications and Web-enabled business processes.
- Business integration of all forms continues to command IT investment from corporate budgets.
In a separate brief, released on April 30, IDC predicted that the top 100 U.S. organizations—in terms of their potential to make IT investments—would invest $84 billion in 2003. It also found that "the largest vertical market opportunities for selling IT products and services in the United States private sector during 2003 will reside at the high end of the financial sector and the discrete manufacturing industry."
In addition to its sizing of the top 100 IT spenders, it also reports that "roughly one-third of all North American organizations are increasing their IT budgets in 2003."
In-Stat weighs in
In-Stat/MDR recently took a look at enterprise IT spending and found that "for the most part, the centralization of corporate information and resources is expected to drive this market’s spending on technology for the next few years, primarily in the form of increasing connectivity requirements (including remote access/VPN solutions), continued investment in systems (particularly more mobile client devices) and expanded use of managed services."
According to Kneko Burney, In-Stat/MDR’s chief market strategist, “…enterprise IT spending will rebound slowly, but steadily, through 2006. There is still too much uncertainty in the worldwide economic environment. This, combined with these customers' changing requirements for mobility and need for improved information management and access, is expected to lead to cautious, hard-nosed IT investing in this market.”
Burney also contends that "these firms are expected to look for investments with a well-defined, 12- to 18-month return on investment, especially those investments that can improve the efficiency of their core business operations or the productivity of its workforce."
In-Stat's other key findings include:
- Enterprise businesses spent more than $225 billion on information technology in 2002. By 2006, enterprise firms will spend nearly $256 billion on information technology products, services, and personnel.
- In comparison to other business segments, the overall enterprise market remains the largest, in terms of IT spending. However, this market’s IT spending is expected to experience the slowest growth over the next several years.
- Spending on telecom services and equipment is expected to experience the greatest growth.
- The services industry, including healthcare, legal, accounting, and management consulting services, accounted for the largest share of IT expenditures among U.S. businesses in 2002. Spending by services firms is also expected to experience some of the fastest growth, moving forward, due largely to above-average growth in the number of firms in this industry and increasing technology requirements. The manufacturing vertical accounted for the second largest share of U.S. IT expenditures.
What does it mean?
Most analyst firms seem to agree that things are beginning to pick up for the IT industry, but very slowly. Even looking to 2007 and beyond, no one is predicting a return to the boom times the industry experienced just a few years ago. Here are some of my observations on what the IT spending trends mean to players in the IT market:
- If you're an IT vendor, be prepared to tough it out.
- If you're a profitable IT vendor with money in the bank and a leadership position in a well-defined (and preferably a vertical) market, you should be able to survive.
- IT companies that are struggling today will need to come up with a serious Plan B. (Chances are that Plan B will not involve investments from the venture capital community.) Companies that are struggling today may be forced to sell out, merge, or simply close their doors.
- It’s a buyers market. IT vendors know they must bargain to land new business; this means downward pricing pressure on nearly all types of IT and telecom products and services. IT buyers should also take a close look at the financial health of their vendors to determine whether they can stay in business over the next four to five years.
To read the full text of these and more than 140 other analyst views on IT spending, visit the Analyst Views IT Spending Hot Topics section.