IT spending to boom in 2008

IT buyers will maintain business as usual for the next five years, increasing spending on average 6% annually, and by 2008 the tech economy will see another boom, Forrester Research says.

IT buyers will maintain business as usual for the next five years, increasing spending on average 6% annually, and by 2008 the tech economy will see another boom, Forrester Research says.

In 2005, Forrester predicts IT spending will increase by 7%, indicating to the firm that tech spending has rebounded from its fall in 2001 and is slowly returning to normal as U.S. companies continue to gradually increase budgets as they digest and refine their current technology investments. By 2006 and 2007, interest in new technology initiatives such as service-oriented architectures, Web services and organic IT (Forrester’s term for utility computing) will spur a tech boom and by 2008 IT buyers will increase their spending – potentially to the more than 15% growth rates of 1997 through 2000.

In its “IT Spending Outlook: 2004 to 2008 and Beyond,” Forrester compares the IT industry crash a few years ago and its ultimate resurgence now with other significant technology periods over the past six decades. The firm says that the past three periods of growth in IT investment corresponded with the introduction of a “major new technology.” For example, mainframe computing emerged in the 1956 to 1966 period, then personal computing originated between 1976 and 1984, and most recently network computing came into being in 1992 and grew substantially through 2000.

“Each period of technology innovation and growth has been followed by multiyear periods when business focus on how to get business value from existing technology,” the report states. According to Forrester, that means U.S. companies will be focusing on getting a return on investment out of their current technology and working to improve and change processes internally and with partners. 

As for the 7% increase in spending for 2005, Forrester predicts U.S. companies will put their money toward computer hardware, outsourcing services and networking gear. Computer hardware is expected to grow at a compound annual growth rate of 9% from 2003 through 2008. New computer investment will initially be higher at 14% in 2004 and 11% in 2005 as companies look to increase spending from deep lows in 2001 and 2002. The main drivers for this spending include improved price and performance, the spread of Linux and other open source software and the adoption of blade servers. Companies will also be looking to increase storage due to compliance issues and upgrade equipment, Forrester says.

Companies will increase spending on network routers, switches and communications management equipment about 4% annually 2003 until 2008. Enterprise companies have been purchasing equipment at a steady pace now representing two-thirds of the market shared with service providers and carriers. With both groups in buying more, 2004 will see a 16% increase after three years of decline and then taper off to 4% in 2005 and 7% in 2006, Forrester says.

“The need to replace aging LAN equipment will drive demand from enterprise [companies] during this period, with enterprise [companies] also investing in security appliances for network security because wireless network security is becoming a top priority,” Forrester says. The research firm says the hot areas in network equipment spending will be VoIP, WiMAX (802.16a wireless standard), VPN appliances for securing networks and traffic management systems to optimize voice and data traffic.

Lastly, outsourcing will consume more of IT budgets in the coming years, as offshore options continue to offer cost-efficient options to enterprise companies. Yet Forrester predicts the 7% increase in IT outsourcing spending to slow by 2006 and 2007 as prices rise.