Worldwide IT Spending Recovering Slowly

Gartner sees 3 percent increase in 2002, 7 percent in 2003; software spend to focus on infrastructure

Lake Buena Vista, FL  October 9, 2002  Worldwide spending on information technology will climb slightly in 2002, with revenue totaling $2.3 trillion, a 3.4 percent increase from 2001, according to figures released this week by the Dataquest unit of technology consultancy Gartner.

Gartner, which presented the findings at its Symposium/ITxpo 2002 here this week, said that IT spending should pick up again in 2002 after declining by 0.4 percent in 2001. Next year should see the pace quicken, with a 2003 growth rate estimated at 7.0 percent.

"Our forecast shows that we are unlikely to see anything beyond normal seasonality before the second quarter of 2003," said George Shiffler, principal analyst for Gartner Dataquest's computing platforms and economics research. "We expect the return to spending to begin with shorter-term, less strategic items, such as PCs, low-end servers and infrastructure software that can help deliver more value out of systems and networks."

But Shiffler warned that given the continued fluidity in the global economic situation and the rising uncertainty surrounding the strength of global economic recovery, the technology sector still faces "significant downside risks."

The software industry is expected to return to positive growth in 2002, with worldwide sales totaling $76.9 billion, an increase of 3.6 percent over 2001, a year that saw a 5.7 percent drop in sales. Software sales are expected to rise by a healthier, if still somewhat anemic 6.5 percent in 2003, to reach $81.8 billion.

But Dataquest analysts said the industry will recover at different rates. "In the short term, most demand will be for infrastructure software that can help deliver more value out of existing systems," said Roger Fulton, group vice president and worldwide director for Gartner Dataquest's software program. "Packaged application spending will recover more slowly, as it is dependent on new business initiatives and higher levels of confidence in the business value of IT."

According to Gartner's figures, the telecommunications sector is leading worldwide IT spending, consuming 58.4 percent of technology spending in 2002. IT services follows at No. 2, with end-user spending pegged at $557.5 billion, followed by hardware spending at $323.3 billion.

"The telecommunications segment is being driven by the fixed and mobile telecom services markets," said Dean Eyers, group vice president and worldwide director for Gartner Dataquest's telecommunications group. "Combined, these telecom services segments are forecast to grow 8.8 percent in 2002. Absent them, total IT spending would actually decline by 0.5 percent."

IT services end-user spending grew less than 5 percent in 2001, and IT services suppliers reported results for the first half of 2002 that will reduce growth slightly this year.

"In the outsourcing area, management services are enjoying relatively healthy growth during this economic downturn because of an emphasis on cost reduction and efficiency enhancement," said Kathryn Hale, principal analyst for Gartner Dataquest's IT services group. "On the other hand, consulting, development and integration are most often sold through discretionary project contracts that can be delayed or not done during a weak economy."

The PC industry will account for much of the growth in the hardware segment, Gartner believes. Dataquest analysts said the PC segment accounted for 53 percent of the total computer hardware market in 2001. While the PC market is forecast to experience a slight increase in 2002, other hardware segments are facing mixed results.

"In the server market, price competition continues to increase, particularly in the RISC/Unix server market, and this has resulted in lower revenues," said Charles Smulders, vice president of Gartner Dataquest's Computing Platforms Worldwide group. "The handheld market continues to perform below expectations, as enterprises are unwilling to spend experimental dollars on new handheld technologies. Saturation in the printer, copier and PC markets will be an important factor in how these markets perform in 2003 and 2004."