August 6, 2003 5:20 PM PDT

IDC: Bright spots ahead for IT spending

Despite the economic downturn, certain industries such as banking will offer opportunities for information technology vendors in the next few years, according to a new report.

In particular, the communications and media industry will rank among the top three worldwide in IT hardware spending, said a report released Wednesday by research firm IDC.

The report offers a glimpse into which industries will spend the most on IT software, hardware and services in 2007, compared with estimates for this year. Overall, it predicts that worldwide revenue for the three IT sectors combined will grow 26 percent to $1.1 trillion.

"The worldwide economy ended 2002 much weaker, said Anne Lu, IDC's senior analyst for worldwide vertical markets. "As a result, IT budgets were negatively impacted as the year progressed, and industries struggled to manage costs and meet profit goals. However, certain vertical markets still present bright IT opportunities depending on regions and industries."

Banking, government and manufacturers that assemble premade components--otherwise known as discrete manufacturers--will largely remain the top three customers for IT products and services, according to IDC. However, there will be a shift in their share of each sector.

Hardware sales, the second-largest generator of global IT revenue, are expected to see the communications and media industry make a bigger impact. These will jump to second place in the list of top spenders, displacing government buyers to the No. 3 spot. The segment will account for 9.6 percent of worldwide hardware sales by 2007, up from the 8.7 percent estimated for this year.

"Telecom represents a large portion of the communications and media (customer segment)," Lu said. "Even though telecom has hit the hardest in the downturn, we think the whole telecom industry will pick up in 2005. And when this happens, they will be the industry to bounce back the fastest and strongest."

Despite only ranking third, government spending on hardware is expected to increase to 9.5 percent of worldwide sales, compared with 9.2 percent for this year.

By contrast, spending by discrete manufacturers will fall, the report's authors said--as will the industry's share of spending on IT services and software. The industry's slice of the IT hardware revenue pie is expected to drop to 11.1 percent, from 11.4 percent this year.

In IT services--the tech sector that generates the most revenue worldwide--banking will remain the largest customer. In 2007, it is expected to account for 16 percent of IT services revenue, up from 15.6 percent.

Government buyers will also increase their spending--to 13.4 percent from 12.9 percent-- but will still rank third in the IT services sector, IDC said.

"Before, government was reluctant to outsource their IT," Lu said. "But now they are following the same pattern as businesses, which find outsourcing is a good way to save costs."

Discrete manufacturers are expected to spend less on IT services, generating 13.4 percent of revenue, compared with 13.8 percent.

The industry's spending on software is also anticipated to fall--to 14.2 percent from 14.7 percent--though it is the sector's No. 1 customer.

Banking customers will slightly increase their share of IT software sales to 10.1 percent, from 10 percent. The government sector, the third-largest customer base, will see its software spending jump to 10.4 percent from 9.9 percent.

"Government, overall, has the best growth rate. The government has a lot of IT initiatives, especially given their priority on security issues," Lu said.

California, however, may be the exception to this trend. The state's chief information officer recently told a gathering of high-tech executives that the Golden State is scrutinizing its IT spending, given that California faces a massive $38 billion budget deficit.

 

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