Trying to answer the question of whether IT spending will rise, fall, or remain flat in 2003 is like trying to shovel smoke. The answer just keeps eluding you. According to Gartner, the answer is: It depends on your vertical market. The group estimated that enterprises cut IT spending by seven percent in 2002 and predicts that overall spending will remain flat in 2003.

A recent survey conducted by Morgan Stanley projects a small growth of two to three percent, with the caveat that some companies may lower their budgets depending on what the year brings. IT services and solutions providers will have a difficult time knowing where to focus their energies, especially when faced with the mixed signals sent from varying industries, according to the survey.

The Aberdeen Group, an IT research firm, has projected that IT executives will increase budgets by an average of 3.7 percent over the next six to 12 months. And just under half of TechRepublic members expect to increase IT budgets next year, according to a recent poll (see Figure A).

Figure A

It depends on the industry
If you work in the U.S. federal government, financial, health care, or retail sectors, the money may flow a bit more freely in the coming year, according to Gartner research. Meanwhile, the communications and transportation industries’ outlook for IT spending is “troubled,” states a Gartner report, “Preview of 2003 IT Spending Growth Among Vertical Markets.”

The report indicates that the transportation sector, along with utilities, might spend some dough on new technologies such as biometrics and wireless. The traditionally techno-phobic insurance and retail sectors will shift to a more strategic view of IT in 2003, and the financial services industry is “poised to make a comeback following two years of deep constraints…” Overall, Gartner recommends adjusting your expectations of IT spending to “prepare for uneven growth,” where most industries’ spending will fall somewhere between the healthy increases in federal government and the severe restrictions in communications.

The following are some specific predictions from Gartner regarding individual markets:

  • The transportation industry will see a low level of IT investment growth with security spending occupying an increasing share.
  • The U.S. federal government will see an increased budget with escalation of Department of Defense expenditures. State and local governments will focus their IT spending on cost management and revenue-generating initiatives.
  • Health care will see a rising cost of doing business and will continue to explore business process outsourcing-related services.
  • The communications sector, in an effort to cut costs, will stifle capital expenditures until a return to positive growth begins late in 2003 or early in 2004.
  • Manufacturing will “lag economic improvement” and focus on those projects that offer quantifiable business benefits within a three- to six-month timeframe.
  • Retail industries will make moderate increases in IT spending and will more aggressively adopt technologies with a strategic benefit to business.
  • In the financial services sector, banking will focus on security and straight-through processing efforts while insurance entities—affected by Enron and the Sept. 11 attacks—will spend more IT dollars with a focus on channel management and core systems.
  • Utilities will invest in projects that improve customer service, create operational efficiencies, and increase effectiveness and security.

The Morgan Stanley survey indicates that while controlling costs remains the dominant issue on IT leaders’ minds, nearly half surveyed were positive or slightly positive on the economic outlook. Two in five executives said they expect to spend more on new projects in 2003 than they did in 2002. The focus for most investments will be—not surprisingly—security, according to the survey. Other expected expenditures were software, storage, PCs, and servers.

What’s your forecast?

Send us an e-mail or post a message below about the industry in which you work and how you predict your IT spending will compare to that of 2002. If your budget is increasing, why? For what will the major portion of your IT budget be spent?