In-Depth

All Systems Go for IT Spending

International Data Corp. reports the first meaningful increase in IT spending since 2000—mostly in the western U.S.

• By Stephen Swoyer
• 04/27/2004

Last month, market research powerhouse International Data Corp. (IDC) announced that the U.S. was seeing its first meaningful increase in IT spending since 2000. At about the same time, Forrester Research, citing the stronger-than-expected economic and profit growth in year-end GDP and financial reports, raised its own forecast for U.S. IT spending

In fact, the two market watchers weren’t all that far apart: IDC projects that IT spending will increase 4.7 percent by the end of 2004; Forrester, on the other hand, anticipates a 5 percent increase for the year.

One very interesting upshot of IDC’s spending report, “The United States Black Book: IT Spending by Vertical Market,” is that the recovery, such as it is, will vary from coast to coast.

"The IT spending recovery across the United States remains uneven," said Stephen Minton, program director for Worldwide IT Markets and Strategies research at IDC, in a statement. "While relatively strong growth will return this year to many western states, including California, the same cannot be said for the manufacturing heartlands of the Midwest and South. Technology spending will also remain depressed in states such as Missouri, Kansas, and South Carolina."

Not surprisingly, IT spending in the Northeast is expected to occur disproportionately in the financial and banking industries.

"When targeting the Northeast, IT vendors need to remember that it is a volatile environment," said Jessica Goepfert, program manager for U.S. IT Opportunity research, in the same statement. "While sometimes that volatility can work in their favor, it can also hurt their business. Despite the roller-coaster effect, it is an entrepreneurial region, where people and business may be more willing to take a chance on something new and innovative."

IDC found definite signs of recovery in many Western states, particularly in hard-hit California, where total IT business spending amounted to $37.9 billion at the end of 2003, but which is expected to post 5 percent growth in 2004.

Forrester, for its part, anticipates that sales of computer hardware will grow by 10 percent in 2004, with software sales growing by eight percent—mostly because of demand for infrastructure and security software. Sales of networking and communications equipment, on the other hand, are only expected to grow by about one percent—mostly because the sector grew so rapidly last year. Surprisingly, Forrester found that Linux and offshore outsourcing are at the bottom of most companies’ lists of spending priorities.

Last month, Forrester also announced the results of its first CIO Confidence Poll, which it plans to conduct on a quarterly basis to assess the confidence of CIOs. The inaugural poll surveyed 112 CIOs—three-quarters of whom represented enterprise-class companies with at least 1,000 employees—and found that most were upbeat about the prospects for their industries' performance. Even though two-thirds of respondents said their business climates should improve in 2004, more than half expected their IT spending would remain at its budgeted run rate through the rest of the year. As a result, Forrester believes that CIOs have taken to heart the “do more with less” philosophy that they internalized during the economic downturn.