"Mild" IT Spending Growth Expected

In-Stat/MDR: Centralization of corporate information and resources to drive tech investments

Scottsdale, AZ  March 27, 2003  Even in the context of a lackluster economic environment, spending on information technology (IT) increased 3 percent between 2001 and 2002 at firms with more than 1,000 employees, and this segment's expenditures are expected to continue to increase this year as well, according to technology research firm In-Stat/MDR.

The high-tech market research and consulting firm reported 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.

However, growth will be mild for years to come, according to Kneko Burney, In-Stat/MDR's chief market strategist. "Regardless of the previous years' trends, enterprise IT spending will rebound slowly, but steadily, through 2006," Burney said. "There is still too much uncertainty in the worldwide economic environment. This, combined with these customer's 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 said 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 the shadow of a lagging economy and quickly changing world events, addressing the IT needs of this market will likely be a roller coaster ride, particularly in the near term, In-Stat/MDR warns. "For the time being, vendors targeting this market are encouraged to focus on solving the most essential, business-critical problems, like work mobility and access," Burney advised. "In the medium- to long-term, these customers will begin to think more out of the box again in terms of IT planning, but are likely to continue to focus their resources on solutions that are modular in nature and address key business problems and/or enhance specific business processes."

Elsewhere in its report, entitled "Spend-Thrift?: IT Spending Across Technology and Vertical Market, Part One: US Enterprises (1,000+ Employees)," In-Stat/MDR estimates that 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, the consultancy predicts.

The consultancy found that 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 US IT expenditures.

In comparison to other business segments, the overall enterprise market remains by far 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.

In addition, In-Stat/MDR believes that spending on telecom services and equipment will experience the greatest growth moving forward.

In the report, the consultancy presents five-year spending forecasts for overall IT spending in the enterprise market, including forecasts for spending for the six broad spending categories of computer hardware, applications, network hardware, telecom services and equipment, IT personnel and outsourcing and hosted services.

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