IDC: IT spending will rebound

IDC: IT spending will rebound

Unless the war in Iraq drags on, global IT spending will rebound this year, growing 2.3 per cent over last year, according to market researcher IDC, in a downward revision of a previous forecast that saw growth of 3.7 per cent.

The revised forecast, offered in the company's latest Worldwide Black Book analysis, was made because of the war and uncertainty about the stability of some economic regions.

Assuming a "relatively short war" and economic stability, IDC predicted global IT spending this year would reach $US852 billion.

Broken down by region, European IT spending growth would lead with 2 per cent, with a 1.5 per cent increase in the U.S. and a 1.4 per cent decline in Japan, which continued to suffer ongoing economic problems including an unemployment rate that has risen to 5 per cent, the highest in a decade.

Spending growth will be spurred by software with a predicted increase of 4.5 per cent worldwide.

Hardware, however, would continue to slump with an 0.5 per cent decline, IDC analysts said. Spending on services would also increase with 3.7 per cent growth.

Overall growth would continue next year with an increase of 4 per cent to 6 per cent, and hit 6 per cent to 7 per cent in 2005, analysts said. The global IT market would hit $US1 trillion in revenue by 2006.

Low profits and the business climate were the two top issues that caused companies to cut back on IT spending, but "there is a certain amount of pent-up demand from the last couple of years that will gradually start to overcome these inhibitors," program director for IDC worldwide IT markets, Stephen Minton, said.

That would amount to a gradual shift toward IT spending increases, he said.

When the war ended, there would be an upturn overall in the US economy at least, with other regions also poised to see improvements, said Kevin White, research manager for IT markets and strategies, who also forecast a stock market rally as part of the rosier picture.

Japan would continue to have issues related to deflation and its overall economic woes, and Western Europe ought not to expect the same amount of economic stimulus that would be evidenced in the US.

"At least in the US, I think there are some positive drivers in place and ultimately a US recovery will help other regions recover as well," Minton said.

IDC is keen about an increase in network equipment purchases, driven partly by widespread broadband adoption and data network growth.

It predicted that the converged handheld market would provide a key boost to hardware overall, which would have a tougher time recovering because of "fierce price competition and continued capital expenditure declines from telecom operators," IDC said.

Outsourcing would be a top growth segment, even though cost-cutting last year disrupted that market, analysts said, forecasting stronger price stability in services contracts this year and next.

Mobility, including wireless services and devices, will take hold as a global trend.

For instance, in Western Europe, that push would lead to a 91 per cent increase in spending in that area next year, said Vicky Hawksworth, a senior research analyst in the EMEA (Europe, Middle East, Africa) IT markets centre.

Converged devices are "the driving force behind this growth," she said. Such devices combine, for instance, a mobile telephone and a handheld computer.

However, short-term gain in the mobile segment alone won't translate into overall IT spending health in that region.

"In the medium to long-term, the outlook is certainly positive for the European markets, but in the short term, the prospects for any significant rebound remain limited," Hawksworth said.

In the Asia-Pacific region, the outlook also remained mixed in what IDC called "a tale of two regions," Minton said. If Japan was taken out of the mix, the forecast looked better, particularly relative to China, which was forecast to experience a 7 per cent to 8 per cent growth in gross domestic product next year. Insurance and banking companies were moving into China and the telecommunications sector there also showed promise for growth.

Elsewhere in the Asia-Pacific region, Australia would continue to be strong and South-East Asian countries would stay on the road to recovery, IDC predicted.

Emerging markets still had "pretty positive growth expectations over the next few years," assuming they remained stable, he said. But the economic abyss that Argentina fell into could happen elsewhere, so any forecast for emerging markets assumed stability in countries that might better be viewed as volatile. The Middle East also remained a big question mark because of the effect a prolonged war would have there.

"If the war goes on longer, that region will take a big hit" to both its overall economy and in IT spending, Minton said.

Yet, based on an assumption the war would not be prolonged, IDC forecast that after it ended there would be a gradual recovery for corporate profits and business confidence would improve. That would mean a global increase in IT spending.

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