Exclusive research for Computer Weekly has revealed that the IT
market has stabilised, and a cautious increase in IT spend has
begun. Daniel Thomas reports.
The past two years have been a struggle for IT departments in the
UK, with many seeing budgets slashed, while the massive growth of
recent years has reduced to a trickle of new money.
However, the first sign of a revival in IT spending emerged last
week, when an exclusive
Computer Weekly survey, prepared by
Kew Associates revealed that IT spending growth has increased after
four quarters of decline.
Annual growth was 5.4% in the second quarter of this year,
according to the latest installment of the quarterly IT expenditure
survey. This compares with a 4.7% increase in the preceding
quarter.
The green shoots of recovery will be in full bloom by next year, it
suggested, with IT spending growth expected to return to double
figures.
The survey, based on information collected in June from up to
60,000 businesses, predicted that the downturn in IT spend will end
in 2003, with a rise of 10% to
£70.4bn.
Vicky Hawksworth, senior research analyst at IDC, said the survey
results were good news for IT departments. "It shows that we have
seen the worst of the downturn and are taking the first steps on
the long road to recovery," she said.
Hawksworth predicted that many IT managers would focus on
integration software when purse strings are loosened. "We can
expect to see companies spending more on software when the market
picks up, particularly on integrating applications.
"Many companies have implemented a lot of applications in a bid to
stay current, but they are often not very well linked up." Software
and IT services will be the strongest growth areas in the market,
she said.
This is reflected in the survey results, which predict that
computer services spend will rise by 20.3% this year, with spending
on system software tipped to increase by 9.6%.
Philip Virgo, strategic adviser for IT professional body the
Institute for the Management of Information System, agreed that
companies will channel more of their IT budget into services in the
coming months.
"Much of the increased spend will go on services," he said. "This
will be the catalyst for incremental upgrades in software and, in
some cases, hardware - not the other way around."
The discrepancy in spending growth between companies with fewer
than 500 employees and larger firms is as marked as ever, the
survey results show.
During the second quarter of 2002, small and medium-sized
enterprises' IT spend is expected to grow by 8.8%, compared to only
3.6% in larger companies.
Smaller companies would increase their IT spend even further, if
only suitable products were available, according to Virgo.
"There is a lot of unsatisfied demand from small users for low-cost
systems - they are not being offered what they actually need," he
said. "They want a business solution rather than an IT
system."
Public sector spending growth, fuelled by government cash for
getting services online by 2005, shows no sign of abating,
according to the survey. It is expected to rise by 12.3% in the
second half of 2002, a trend that did not surprise Virgo.
"There is an awful lot of money going into the modernising
government agenda and there is a genuine demand in this area," he
said. "This is likely to continue for the next year to 18 months
with a lot of money going into training."
IT training spend is expected to rise by a massive 25.6% in 2002 -
a level matched only by spend on online information services, which
is expected to rise by 24.1%, the survey revealed. This is in stark
contrast to spending on recruitment and contractors, which is set
to fall by 10.7% this year. Hawksworth said the disparity between
IT training and recruitment is a direct result of the prevailing
economic conditions.
"Companies are trying to nurture the staff they already have rather
than bringing new people in," she said. "However, this trend will
begin to change as the market picks up and companies feel more
confident."
Virgo sounded a note of caution on the training figures, suggesting
other reasons for the massive growth.
"It may be that IT departments are bringing training schemes, such
as the European Computer Driving License, back under their
control," he said. "In some cases there has been a sharp increase
from a low base for properly training users, for example in the
NHS."
Nevertheless, Virgo admitted, companies are spending heavily on
training in certain areas. "There has been a massive growth in
training on IT security, while more companies are training users
for project management," he said.
Companies are also set to commit heavily to outsourcing this year,
with spending expected to grow by 17%, according to survey
findings.
This, again, is a consequence of the downturn in the economy, said
Hawksworth.
"It is the nature of the market conditions," she said. "Companies
are looking for ways to save money rather than spending it on
non-essential items, such as new PCs."
Indeed, the survey predicted that sales of PCs, in both desktop and
notebook form, would fall by 3.3% this year. Virgo said this trend
has been noticeable, particularly among smaller companies.
"A lot of them are extending the life of their PCs with upgrade
cycles of five rather than three years," he said. "Upgrades will be
more closely linked with service contracts in future."
Businesses have learned their lesson from the boom and bust of the
dotcom era, suggested Virgo.
"Companies are much slower to spend their budgets unless they get
value for money," he said.
"Do not expect any 'big bang' projects - the increasing spend is
likely to go on lots of small contracts, perhaps as part of a
bigger architecture improvement," Virgo predicted.