Tech Spending Outlook
Web Design & Technology News, October 21, 2003

October 21, 2003

Technology spending is poised to return to solid growth in 2004 and beyond as companies shift from cost-cutting to focus on innovation that drives sales, according to the Gartner Group.
By Reuters

At its annual conference this week, Gartner is advising its base of 10,000 corporate and government clients to spend more in 2004 on wireless networks, Web services and technologies that help businesses grow, not just save costs.

"Gartner is telling you a big turn is coming," Michael Fleisher, the consulting company's chairman and chief executive, said in a speech to some 6,000 corporate technology purchasing decision makers attending the Gartner Symposium conference in Orlando, Florida.

"2004 will be the year that companies make the turn from protecting profitability to driving growth," Fleisher said. He said sweeping new technology changes will be at hand as spending accelerates modestly in 2005 and 2006.

"We believe that '06 will look as different when compared with '03 as '03 looks when compared with '99," Fleisher said, referring to what he sees as a projected upturn and to the previous boom years.

Still, the upbeat outlook was tempered by a call for companies to continue to cut expenses by switching to lower-cost PC hardware and outsourcing software and services to lower-cost, often overseas, technology suppliers.

The Stamford, Connecticut, consulting firm estimates that 25% of all technology jobs will be centered in low-cost, developing-world countries such as India by 2008.

And technology buyers gathered at the conference -- everyone from Campbell Soup to the Mormon church to the U.S. Missile Defense Agency -- say they require proof of how they can save more money overall when spending on any new product or service.

Yet after a three-year downturn, Gartner now expects to see the first annual pickup in purchasing of computer services and wireless telecommunications this year and for solid growth in hardware and software to return in 2004.

Overall, Gartner forecasts global technology spending to grow 5.4% to $2.4T (trillion) in 2004 over the $2.27T expected to be spent in 2003.

It forecasts yearly growth of around 5% in each subsequent year through 2007 to $2.77T, representing solid growth in historical terms but only half the 9% to 10% growth rates seen in the late 1990s boom years.

The biggest gains are expected in computer hardware, which should grow 4.4% to $355B in 2004 from flat growth in 2003 and negative growth of 2.2% in 2002. Software is expected to jump to 7% from 2.2% growth this year and to average 8% growth through 2007.

Gartner says the vast bulk of corporate and government spending will remain focused on keeping core technology systems up and running or figuring out how to shave costs by running these operations or hiring outsiders to handle the work.

New technology purchases over the next two to three years will center on four themes, Fleisher said.

• Gartner foresees a rapid shift to secure, high-speed wireless networks within many organizations.
• The shift to a more mobile work force will increase as buying switches to notebook PCs from desktop computers and more organizations adopt wireless e-mail and other ways of staying connected while on the road.
• As more workers begin to enjoy constant network connections, demand for real-time access to company information in the form of Web-delivered services.
• These will require growing numbers of computer servers to capture all the new data created on these networks.
• Gartner's message is based on a reading of macroeconomic tea-leaves that suggests a broad U.S. economic recovery is taking shape and steady corporate profit growth has returned.

But some technology vendors at the Gartner conference expressed reservations, saying that while spending patterns have stabilized over the past year or two, they have yet to see signs of a rise in computer budgets.

"This coming year is more of the same. I see more business as usual," said Joseph Marengi, who as general manager of Dell Americas division, oversees two-thirds of his company's sales. "I don't see any big uptick (in growth rates) on the horizon."

"No customer is telling us they have an extra $100 million to spend next year," Marengi said. "There is going to be a pool of money spent on new technology and that pool of money will be smaller than three years ago," he said.