An improving U.S. economy and pent-up demand after years of austerity will combine to fuel IT spending growth in 2004, research firm IDC predicts.
According to the report, "IDC Predictions 2004: New IT Growth Wave, New Game Plan," released Thursday, IT spending will grow by between 6 percent and 8 percent in 2004, creating a "tech resurrection" in a year that will also see a continuation of trends such as off-shore outsourcing of IT services, wireless technology adoption and brisk consumer spending on new media technologies.
Positive U.S. economic news in recent weeks was key to IDC's rosy predictions for 2004, coming just as companies are setting their IT budgets for next year. That good news will generate optimism for the coming year, driving an increase in enterprise IT spending and keeping consumer spending on track, IDC said.
However, companies are still wary and a number of factors could upset plans for an IT spending recovery, including a spending curtail due to high consumer debt or bad economic news, said Frank Gens, IDC senior vice president, in a conference call to discuss the report.
"If we get a string of economic shocks, watch for the scalpels to come out on (IT) budgets," he said.
A better spending environment won't necessarily translate into a hot IT job market, however.
IDC predicts that the movement of IT jobs offshore, which blossomed with the bursting of the Internet technology stock bubble, will continue in 2004 and beyond. The value of IT services provided to U.S. businesses from offshore labor will double to US$16 billion next year and triple again to $46 billion by 2007, IDC said.
That could be especially hard on smaller IT services firms in the U.S. that haven't started outsourcing, said analyst Traci Gere.
"Larger firms are adding (outsourcing) capabilities at figures of thousands of employees a month. That competition is going to come to brass tacks in 2004. Smaller firms need to be paying attention to other differentiation they can offer," she said.
Next year will also see the continuation of a trend towards "commodity" IT strategies that rely on standards-based technology and off-the-shelf products.
Sun Microsystems Inc.'s recently announced Sun Fire B100x Server, which features an Advanced Micro Devices Inc.'s Athlon XP1800 chip is just the latest example of that trend, which will make it more difficult for companies with proprietary hardware and software products to compete.
"Sun was the last holdout of the vertically integrated view (of hardware and software)" Gens said.
While companies such as Sun, IBM Corp. and Hewlett-Packard Co. (HP) have all been moving away from proprietary technology and platforms, the rapid move to a "commodity" computing model will put more pressure on them to refocus their strategy on the new business environment and manage the transition from older platforms, IDC said.
That shift will resemble earlier paradigm shifts in the IT industry, such as the shift from mainframe to personal computers in the late 1980s, Gens said.
"If you think this kind of shift is obvious and adapting to it is easy, think of this word: Wang or Prime, or Digital. All of those companies were on the beach when the tide was rising last cycle. It's not easy. This will be a cultural change for these companies," Gens said.
While companies like IBM and HP are in a good position to take advantage of the shift and drive adoption of low-cost platforms that use Intel processors and Linux software, Sun will spend much of 2004 adjusting to its recent change of course and getting employees and company executives to buy into the new vision, he said.
The trend toward commodity computing products may also benefit makers of Linux operating systems, which will likely see more interest in Linux as a low-cost option for deployment on servers in 2004, according to the report.
Wireless technology will continue to proliferate next year, with the number of WiFi hotspots worldwide increasing to almost 85,000 in 2004 compared with 50,000 in 2003, IDC said.
However, corporate adoption of wireless networking will lag behind public adoption, with security concerns and the presence of existing wired infrastructure slowing the transition to wireless local area networks.
On the consumer side, the continued increases in broadband Internet access and a range of new consumer products from companies such as HP, Dell Inc. and Gateway Inc. will drive the transformation of the PCs into consumer electronics devices, IDC said.
In the "mind the hype" category, IDC singled out utility computing and RFID (radio frequency identification) technology.
Utility computing, the sharing of virtualized IT infrastructure and applications among businesses on a use-based pricing model, might soon transform the way companies consume IT products and services. However, the technology is still plagued by confusion over the meaning and value of such services and a paucity of practical business applications for it.
RFID technology also promises to transform the manufacturing and retail industries, providing companies with far greater control over supply chains. However, the technology is not yet mature, with error- and interference-prone RFID tags and a lack of industry standards.
Corporate investments in both utility computing and RFID technology will be modest in 2004, IDC said.