Research firms forecast spending to increase only moderately going into the new year.
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, and each group reported enterprise 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 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, and each group reported enterprise 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 in 2005.
“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 its modest growth estimate, which the firm expects will continue through 2008, to a natural technology adoption rate among IT buyers. The firm says until 2000 or so, companies were buying new technology wares hand over fist, and following a spending binge of sorts, companies need to digest their purchases.
“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 to $6 billion in new dollars in 2005.
Forrester’s findings reinforce 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%. And the firm concurs that PC equipment will see a boost – about 9% in 2005 – as more companies that had held off on upgrades decide to upgrade. Another area of large growth Forrester expects is applications outsourcing.
“The main driver of the 9% growth that we project is applications outsourcing, which we expect to grow by a whopping 27%,” Bartels says. “Mainframe outsourcing, network outsourcing, desktop outsourcing, and the outsourcing of distributed environments will grow more slowly at about 8%.”
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.
Separately, Goldman Sachs in a survey of 100 IT managers found spending projections to be lower than industry firms forecast. In what Goldman Sachs dubs “Year 2 of low single-digit tech spending,” IT executives on average expect to spend about 3.5%.
“In the absence of game-changing innovation, CIOs lack an urgency to spend, and outside of a few concentrated secular trends, little more than seasonal spending is to be expected,” the report states. The good news, according to the firm’s findings, is that about 90% of IT managers polled expect spending to either remain the same or increase anywhere from 1% to more than 10%.
In a separate survey of about 1,380 technology decision-makers, Forrester found North American enterprise companies planning to increase IT budgets by 3.9% in 2005 – compared with a projected 1.7% increase the same time the previous year. Smaller companies with 1,000 to 4,999 employees expect the most growth (6.9%), while those with more than 5,000 employees are more cautious, with only a 1.3% planned increase. A cautious outlook among IT buyers is to be expected.
“We’re finding that companies say they will spend about 4% more, but as a rule, the actual IT spending comes in higher than what companies are planning to spend,” says Forrester’s Bartels. “Companies lowball their IT budgets.”
