February 12, 2004 9:40 AM PST

Manufacturing, banking to lead IT spending

Manufacturing and financial services companies are expected to invest more dollars in information technology this year than other U.S. businesses.

In a report IDC released Thursday, the research firm predicted that manufacturing and banking companies will account for nearly one-third of an estimated $391 billion spent on technology products by U.S. businesses in 2004. Government spending on regulatory projects also is slated to rise.

"Spending growth should be generally positive across the board in 2004, with many new projects and regulations serving as the largest source of dollars," said Anne Lu, an analyst at Framingham, Mass.-based IDC. "It's a very positive and optimistic picture for this year as the economy continues to pick up."

IDC predicted that IT spending in manufacturing industries will reach roughly $80 billion this year, a 4.2 percent increase over the $76.5 billion reported in 2003. In financial services, including the banking and insurance markets, the research company expects budgets to climb to nearly $83 billion, a 4.1 percent rise compared with $79.7 billion last year.

IDC said consumer markets, such as the packaged goods industry, also are expected to significantly increase their IT budgets. Many consumer packaged goods companies are working with tools such as radio frequency identification (RFID) tags. IDC believes that RFID will dominate the IT budgets of many retailers over the coming years.

"RFID is one of the largest new sources of spending we have seen in manufacturing, with projects eventually having an impact on everyone from retailers" to original equipment manufacturers, Lu said. "Not all of these projects are capitalized yet, but the spending numbers are already growing."

Government IT spending is expected to retain its current momentum, spurred by federal initiatives such as the improvement of communications networks and homeland security. IDC predicted that the government market will generate $38 billion in 2004, nearly an 8 percent increase over last year's total of $35 billion.

That projection makes the government sector the fastest-growing market. Lu said she expects government entities to budget $41 billion for 2005, not including internal expenditures such as staffing.

New mandates from government regulations such as the Sarbanes-Oxley Act, the Health Insurance Portability and Accountability Act and the homeland security-focused USA Patriot Act are also expected to drive spending in a number of industries.

Lu said most IT vendors will see gains in 2004, as U.S. companies react to such changes in their businesses, and as the economy improves.

"The IT market continues to mature, and for vendors to win dollars, they must craft their strategies to match trends in vertical markets," Lu said.

 

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