Tech spending could rise in 2004, but not across the board
By Justin Pope
BOSTON - The corporate spending that drives the technology sector is as strong as it has been since the end of the 1990s boom, giving the industry optimism as it heads into 2004.
"This is not a burst. This is a sustainable interest," said Bill Zadrozny, chief executive of Siemens Financial Services, which helps businesses to finance new technology investments. "There were false starts before, but this one looks for real."
In the third quarter, equipment and software expenditures jumped 17.6 percent, helping to fuel the 8.2 percent increase in gross domestic product, the Commerce Department said.
Most of the recent forecasts that focused more specifically on technology spending predicted a 4 percent to 6 percent increase in 2004, notably healthier than previous years, when corporate stinginess weighed down overall spending.
But that hardly amounts to another boom, and the momentum is uncertain, experts warn. In fact, there appears to have been a slowdown in the fall, perhaps because newly confident information technology managers realized they had overspent budgets set last year when times were tougher.
"I don't think it's going to return to the boom days of five years ago anytime soon," said Tom Pohlmann, who follows technology spending at Forrester Research.
And the growth that comes won't necessarily be across the board. Experts offered their view for the shape of tech spending in 2004:
Software
The buzz word for 2004, recycled from dot-com jargon, is "enterprise" software. Broadly speaking, companies are expected to shift away from software that targets cost-cutting - the overriding priority of the past three years - and move toward software that backs up genuine "enterprise" or "strategic" moves.
Basically, it means that companies will buy software to support initiatives involving supply chains, security, data storage and the way they interact with customers over the Internet.
Forrester expects overall information technology spending to grow 4 percent this year, but such "strategic" spending to rise 9 percent.
The growth will be concentrated in industries such as retail and insurance, Forrester said, where technology goes to the heart of how businesses interact with customers.
But the software industry faces big problems, as well, notably an absence of "killer applications." Nobody doubts products are getting better, but it has been several years since the industry has come up with anything so innovative that customers simply must buy it.
Hardware
Tech budgets and hiring are inching up, and the equipment purchased during the last boom is aging. In short, the pieces are in place for a strong year.
Forrester checked with 818 companies in North America with revenues exceeding $500 million and found that 40 percent of them considered computer replacements and Windows upgrades to be priorities this year.
When companies bring in new workers, they don't put them to work on old equipment, said Gary Beach, publisher of CIO Magazine. New hardware purchases will trickle down to other sectors.
"That new machine is going to take up a little more network bandwidth. So, eventually, they might be looking for new routers," Beach said. "More importantly for the software community, new employees take up a seat license."
Wireless
Look for more companies to embed tiny computers and radio tags in their trucks, crates and factories to provide more accurate information and to run more efficiently. Many companies discovered the cost-cutting virtues of tight inventory tracking during the downturn, and many companies are starting to look more seriously at wireless as the way to get there.
Many companies don't have a choice. Wal-Mart Stores Inc. is forcing its suppliers to invest in radio-frequency identification tags to help the retail giant with tracking inventory.
Telecom
Look for more businesses and consumers to connect telephones to an Internet-based service using the technology known as voice over Internet protocol, or VoIP. Last month, three major communications companies - Time Warner Inc.'s cable TV unit, Qwest Communications International Inc. and AT&T Corp. - announced plans to sell Internet phone services to consumers.
"It's not a tidal wave, but people are saying, 'OK, we've hit the reliability level,'" with VoIP connections and quality, said Zadrozny, of Siemens.
Also, the experts pointed to some areas where growth might not be forthcoming, despite expectations.
One is Linux and other open-source software. Forrester found relatively few companies considering such technologies crucial next year.
Another is outsourcing. Companies that embraced sending their technology elsewhere, including overseas, are starting to realize that it might be more expensive than they thought, analysts say.
Finally, information technology spending on the humans who keep systems running isn't likely to budge. With the labor pool plentiful and companies too cautious to start big hiring sprees, salaries aren't expected to grow much, if at all.
STLtoday
BOSTON - The corporate spending that drives the technology sector is as strong as it has been since the end of the 1990s boom, giving the industry optimism as it heads into 2004.
"This is not a burst. This is a sustainable interest," said Bill Zadrozny, chief executive of Siemens Financial Services, which helps businesses to finance new technology investments. "There were false starts before, but this one looks for real."
In the third quarter, equipment and software expenditures jumped 17.6 percent, helping to fuel the 8.2 percent increase in gross domestic product, the Commerce Department said.
Most of the recent forecasts that focused more specifically on technology spending predicted a 4 percent to 6 percent increase in 2004, notably healthier than previous years, when corporate stinginess weighed down overall spending.
But that hardly amounts to another boom, and the momentum is uncertain, experts warn. In fact, there appears to have been a slowdown in the fall, perhaps because newly confident information technology managers realized they had overspent budgets set last year when times were tougher.
"I don't think it's going to return to the boom days of five years ago anytime soon," said Tom Pohlmann, who follows technology spending at Forrester Research.
And the growth that comes won't necessarily be across the board. Experts offered their view for the shape of tech spending in 2004:
Software
The buzz word for 2004, recycled from dot-com jargon, is "enterprise" software. Broadly speaking, companies are expected to shift away from software that targets cost-cutting - the overriding priority of the past three years - and move toward software that backs up genuine "enterprise" or "strategic" moves.
Basically, it means that companies will buy software to support initiatives involving supply chains, security, data storage and the way they interact with customers over the Internet.
Forrester expects overall information technology spending to grow 4 percent this year, but such "strategic" spending to rise 9 percent.
The growth will be concentrated in industries such as retail and insurance, Forrester said, where technology goes to the heart of how businesses interact with customers.
But the software industry faces big problems, as well, notably an absence of "killer applications." Nobody doubts products are getting better, but it has been several years since the industry has come up with anything so innovative that customers simply must buy it.
Hardware
Tech budgets and hiring are inching up, and the equipment purchased during the last boom is aging. In short, the pieces are in place for a strong year.
Forrester checked with 818 companies in North America with revenues exceeding $500 million and found that 40 percent of them considered computer replacements and Windows upgrades to be priorities this year.
When companies bring in new workers, they don't put them to work on old equipment, said Gary Beach, publisher of CIO Magazine. New hardware purchases will trickle down to other sectors.
"That new machine is going to take up a little more network bandwidth. So, eventually, they might be looking for new routers," Beach said. "More importantly for the software community, new employees take up a seat license."
Wireless
Look for more companies to embed tiny computers and radio tags in their trucks, crates and factories to provide more accurate information and to run more efficiently. Many companies discovered the cost-cutting virtues of tight inventory tracking during the downturn, and many companies are starting to look more seriously at wireless as the way to get there.
Many companies don't have a choice. Wal-Mart Stores Inc. is forcing its suppliers to invest in radio-frequency identification tags to help the retail giant with tracking inventory.
Telecom
Look for more businesses and consumers to connect telephones to an Internet-based service using the technology known as voice over Internet protocol, or VoIP. Last month, three major communications companies - Time Warner Inc.'s cable TV unit, Qwest Communications International Inc. and AT&T Corp. - announced plans to sell Internet phone services to consumers.
"It's not a tidal wave, but people are saying, 'OK, we've hit the reliability level,'" with VoIP connections and quality, said Zadrozny, of Siemens.
Also, the experts pointed to some areas where growth might not be forthcoming, despite expectations.
One is Linux and other open-source software. Forrester found relatively few companies considering such technologies crucial next year.
Another is outsourcing. Companies that embraced sending their technology elsewhere, including overseas, are starting to realize that it might be more expensive than they thought, analysts say.
Finally, information technology spending on the humans who keep systems running isn't likely to budge. With the labor pool plentiful and companies too cautious to start big hiring sprees, salaries aren't expected to grow much, if at all.
STLtoday
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