Report: Tech Spending Recovering But Not Robust

Much to the consternation of the technology sector, tech spending has yet to turn the corner. But a new report from market analysis firm Aberdeen Group predicts worldwide tech spending will reach US$1.43 trillion by 2005, up from $1.21 billion in 2001.

According to Aberdeen senior vice president Hugh Bishop, total IT purchases -- including hardware, software and services -- were flat worldwide in 2001 and slightly down in the United States, though 2002 will see a slight recovery.

"You're not going to see it shoot up through the stratosphere," Bishop told the E-Commerce Times.

He said he expects to see 3 to 4 percent growth in tech spending in the United States during 2002, with most of that growth coming in the second half of the year.

No High Tide

Though a recovery is on the horizon, tech spending will not return to the double-digit growth of the 1990s, according to Bishop.

"IT spending will no longer be a tide that lifts all boats," he said, adding that with less money to spend, technology buyers will have less room for error. Bishop expects tech spending will grow at a rate of 4 to 6 percent through 2005.

The United States will be among the countries leading the recovery, according to Bishop. "The U.S. brought us into this, so the U.S. will bring us out," he said.

Bishop noted that France, the UK and Italy also will fare relatively well, while China will see "huge" growth. On the downside, Japan will continue to have trouble through 2002.

Existing Infrastructure

In general, tech spending over the next 12 to 18 months will focus on technologies and solutions to improve, protect and maintain the products companies already have in place, Bishop said. He cited security, storage, enterprise applications and integration technology as areas with strong potential for growth.

Customer service applications also will be popular.

"Companies are being a little more cautious. They want a clear definition of the business advantage that that solution provides, and [they] want to be able to demonstrate return on investment to senior management," Bishop said.

Slow Spending

Tech spending is generally expected to be slow for the rest of this year. Forrester Research has predicted a 14 percent decline in tech spending during 2002, with a recovery beginning in the second half of the year.

Moreover, Oracle CEO Larry Ellison told reporters Tuesday that he sees no recovery for tech spending in the next three months, and Dell (Nasdaq: DELL) executives have said they believe a slow recovery will begin near the end of the year, months later than they previously had predicted.

Adding to the bad news, IBM (NYSE: IBM) on Tuesday told investors that it will not meet earnings or revenue expectations for the first quarter.

"The business environment remains very tough. We saw a continued slowdown in customer buying decisions in the first quarter," IBM chief financial officer John Joyce said.