Report: Tight Budgets Mean Flat IT Spending in 2003

Demand for information technology products and services has bottomed out and is on the rise again, but strict budget controls will prevent IT spending by U.S. companies from increasing in 2003, according to a new report from Gartner (NYSE: IT) and Soundview Technology Group.

Based on interviews with 850 chief information officers and other IT executives, Gartner predicts that spending actually will decrease by a fraction of a percentage point in 2003, resulting in a picture much like the one that unfolded in 2002.

"The draconian budget cuts of the past two years have flattened while demand continues to build," said Gartner senior vice president Al Case. "This natural economic phenomenon will create a gap between IT budgets and IT demand for the next six to 12 months."

Lagging Indicated

The survey paints a picture in which the U.S. will recover more slowly in general than the rest of the world. Gartner previously predicted that IT spending worldwide would grow more than 7 percent in 2003 to $2.4 trillion, with the most meaningful growth starting in the second half of the year.

Gartner, like other firms, also had previously predicted an uptick in tech spending by the end of 2002, which most acknowledge has yet to materialize.

The problem, Case told the E-Commerce Times, is that even though IT vendors have successfully driven up demand for their products and services, corporations are not yet ready to resume spending on technology.

"Though it may be painful to have to wait for spending to pick up, the pent-up demand may be good news in the long run," Case said. "It may mean a more robust recovery in the end."

Wash Out

Corporations are still seeking to reduce their IT operating budgets, and cuts in that area may offset any increases in capital spending authorized next year by CEOs and others who control the flow of cash.

Growth is most likely to occur in application integration, storage, network hardware, Linux-based servers and lower-cost items, such as desktop PCs and portable computers.

"The increase in demand for technology products suggests the likelihood of a spending increase by the second half of the year," said Soundview CEO Mark Loehr. "If a spending delay does occur throughout 2003, then 2004 will be a significant spending year."

Keep the Old

In fact, Gartner said, most 2003 spending will not be on new initiatives but instead will be aimed at "replacing, upgrading and extending core infrastructure systems."

The report comes on the heels of a sharp revision in the forecast for 2003 microchip sales. But other firms say some sectors will overcome the economic malaise.

For instance, IDC has predicted that the market for IT security and business continuity is ready to explode, with the global market set to more than double by 2006 to $155 billion.