Another year for moderate spending

It will be more of the same in 2005, according to market research firms, which forecast IT spending to grow between 6% and 9% over 2004 budgets. That means IT buyers will continue to keep a close watch on their IT dollars, and increase spending only sparingly in key areas.

Separately, Forrester Research, Gartner and IDC announced their predictions on how many IT dollars will be doled out for new technology in 2005. Each group reported that corporate IT purse strings won't get much looser in the coming months. But the news remains positive as even a moderate increase bodes better than flat budgets, or plans for more cuts.

"IT executives . . . painted a picture of increasing optimism for budget outlays for IT products and services in 2005," says Brian Smith, an analyst at Gartner Research. "A net of 57% more budgets will head upward than downward."

Forrester determined spending could increase about 7%, and Gartner, with the most optimistic forecast, polled 500 IT executives in December, and found budgets could increase by 9% overall. Yet IDC forecasts a smaller increase of 6% - or about $60 billion in new IT dollars to be spent.

"We expect there to be a little more than $1 trillion spent on IT in 2005, which represents very modest growth," says Frank Gens, senior vice president of research at IDC. "It's a slow economic recovery, and it's keeping a bit of a lid on the industry, making IT a buyer's market for another year."

Forrester attributes modest growth, which it expects will continue through 2008, to a natural technology adoption rate among IT buyers. It says, until 2000 or so, companies were buying new technology wares hand over fist. Now companies need to digest.

"The tech economy will keep chugging away like this until the next big period of new investments arises," says Andrew Bartels, a vice president with Forrester. "The 7% growth rate is about in line with the overall economy. We are not in a tech recession, but we won't see double-digit increases for a few years yet."

Among the new technologies expected to garner the lion's share of cash are infrastructure software - specifically security wares such as identity management products - smart handheld devices, PCs, network equipment and application software. IDC says each market will see about $5 billion to $6 billion in new dollars in 2005.

Forrester's findings parrot IDC's numbers. According to Bartels, security software will see a 12% growth within the overall software group, which will increase in line with the average 7%.

On the negative side, while demand for routers, switches and network security devices "kicked into high gear" in 2004 with a 14% increase over 2003, the coming year doesn't bode well, according to Forrester. "The financial struggles of telcos will lead to cutbacks in their own IT investments in 2005, causing overall growth in new investments to shrink to only 4%," Bartels says.