IDC says IT spending has bottomed out

After two years of watching IT spending grind to a near halt, IDC has a new economic outlook that predicts purchases of such things as network equipment and software will stabilize in 2002 and crawl back to reach pre-2001 growth rates by 2006.

The worst is over for most sectors of the IT industry in most regions around the globe, analysts said Thursday during a conference here at which IDC detailed figures from a lengthy report on the health of markets by geography and industry. In 2002, worldwide IT spending growth will return, although it will be nowhere near the 11.5 percent growth in spending that IDC recorded in 2000. By 2005, the rate of spending growth is pegged to reach 10 percent.

However, IDC had a cautious take on the predicted recovery. For example, PC sales will continue to decline, and IT spending in Europe and Latin America remains uncertain because of weak economies. IDC warned in its report that politics, the threat of war and a weak global economy hold IT spending teetering on a thin edge, according to Research Director Stephen Minton, who summarized the report here at IDC's IT Spending Outlook conference. In a worst-case scenario, spending could again decline in 2002 with a recovery delayed to 2004, he said.

The sale of software and related consulting services is expected to lead IT spending back into positive territory, IDC said. Front-office software as well as security software are poised to see the biggest gains. By 2006, software sales should show 10 percent year-over-year growth. The IT services market will grow alongside software, IDC said, as companies look for help implementing applications that manage server consolidation or those built around Web services.

Sales of storage hardware is also poised to return to positive growth, but it is one of the only bright spots in the overall worldwide hardware sector, which suffered declines of more than 20 percent in 2001, according to IDC. "2002 hasn't been a whole lot better," Minton said. "The rate of decline is less but there is still a double-digit decline."

Meanwhile, the PC market shows no sign of recovery and is not expected to return to pre-2001 growth levels by 2006. Although shipments are expected to increase, revenue from the sale of new PCs will still be less in 2003 than in the previous year. PC sales could again show a year-over-year decline as steep as 12 percent in 2004 due to saturation of the market, IDC said.

Regionally, spending on IT in China and India are expect to show the most growth over the next four years. However, Minton called those "wild card" regions, as they are difficult markets to break into. Spending in Europe, Japan, the Middle East and Latin America, meanwhile, will lag the U.S. as they struggle to kick continued recessions.

Europe will see growth in the sale of wireless converged devices such as smart cell phones and handheld computers, IDC noted. Europe's converged device market is expected to be three times that of the U.S. by 2006.

Though hopeful of a recovery, Steve Balentine, senior manager of marketing for Remedy Inc., said after attending Minton's presentation that IDC's predictions rely on optimism.

Balentine knows first-hand the effects of the weakened software spending, which fell from double-digit growth prior to 2000 to no growth in 2001, according to IDC. His company is now being acquired by BMC Software Inc. after its parent company, software maker Peregrine Systems Inc., filed for Chapter 11 bankruptcy protection in September.

"I think their predictions by and large seem to be overly optimistic," Balentine said. Many companies suffer from a technology glut and aren't in the market to buy new hardware and software, he said. "Companies bought quite a bit during the last two years and they're now trying to get it all to work. They're saying 'why should I buy more?'"

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