IDC: IT spending to increase 5% in 2004

Worldwide IT spending will grow 5% this year driven by an improving global economy and the need for users to resolve infrastructure problems, market researcher IDC said Wednesday.

Growth is coming back to IT spending after two years of decline in 2001 and 2002. Last year IT spending was up 2% over the previous year, beating IDC’s 1.2% growth forecast, IDC Chief Research Officer John Gantz said speaking at IDC’s Directions 2004 event in San Jose, Calif.

Worldwide IT spending was $871 billion in 2002, according to a December IDC report.

IDC’s 5% growth forecast for 2004 is one percentage point above that of worldwide IT buyers recently surveyed by the research company, Gantz said. There is pent-up demand that buyers did not report and governments will likely spend more, he said.

The survey shows that U.S. buyers expect a 5% IT spending increase, Western European buyers foresee a 2% rise, their Japanese counterparts see spending going up 3% and in Asia Pacific without Japan 7% growth is expected, resulting in a worldwide average of a 4% increase, Gantz said.

While an improving economy and necessary infrastructure upgrades are the expected drivers for IT spending in 2004, other motivators listed by U.S. IT buyers in a recent survey are more interesting, Gantz said.

“What I like is new product innovation and customer demand,” Gantz said. New product innovation was listed by about a quarter of respondents, and customer demand by just under a third, according to a slide Gantz showed.

As spending picks up, IT departments are also less focused on cutting costs. “Cost cutting has finally moved down the stack,” Gantz said. Users in the IDC survey described infrastructure and software as more of a priority for IT than cutting costs, he said.

IDC’s forecast calls for worldwide IT spending to pass the $1 trillion mark in 2006 and hit $1,041 billion and $1,108 billion in 2007.

After 2004, IDC expects growth to level, with 6.5% in 2005, 6.8% in 2006 and 6.4% in 2007, according to the December report, IDC’s current worldwide IT spending forecast. An update is due out soon, a company representative said.

As the world’s population ages, there will be a relentless need for IT to increase worker productivity, Gantz said. “We’re not breeding fast enough to support ourselves,” he said.

Growth won’t automatically translate into sales for vendors. They need to switch from a marketing strategy aimed at just getting leads to one of getting their brand out again, Gantz said. But vendors also have to adapt to buyers who are tougher and more judgmental than in the boom years, he said.