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IDC: software and consulting will lead IT recovery

Analysts from market intelligence company IDC have forecast that the worst is over for most sectors of the IT industry. After two years of watching IT spend grind to a near halt, IDC's outlook indicated that purchases of network equipment and software would stabilise this year and reach pre-2001 growth rates by 2006.

Yesterday (Thursday) IDC detailed figures from a lengthy report on the health of markets by geography and industry. In 2002, worldwide IT spending growth will return, it said, although it would be nowhere near the 11.5% growth in spending IDC recorded in 2000. By 2005, the rate of spending growth is pegged to reach 10%.

However, Europe and Latin America remains uncertain because of weak economies. IDC warned in its report that politics, the threat of war and a weak global economy hold IT spending teetering on a thin edge. Research director Stephen Minton said that in a worst-case scenario, spending could still fall in 2002 with a recovery delayed to 2004.

The sale of software and related consulting services is expected to lead IT spending back into positive territory. Front-office software and security software are poised to see the biggest gains. By 2006, software sales should show 10% year over year growth. IDC said the IT services market would grow alongside software, as companies look for help implementing applications that manage server consolidation or those built around Web services.

Sales of storage hardware is set for positive growth, but it is one of the few bright spots in the overall hardware sector worldwide, which suffered declines of more than 20% in 2001, according to IDC. Minton said that 2002 had not been much better. "The rate of decline is less but there is still a double-digit decline," he said.

Meanwhile, the PC market shows no sign of recovery and is not expected to return to pre-2001 growth levels by 2006. Although shipments are expected to increase, revenue from the sale of new PCs will still be less in 2003 than in the previous year. PC sales could again show a year-on-year decline of as much as 12% in 2004 because of market saturation.

Regionally, IT spend in China and India is expected to show the most growth over the next four years. However, Minton called those "wild card" regions, as they are difficult markets to break into. Spending in Europe, Japan, the Middle East and Latin America, meanwhile, will lag behind the US.

Europe will see growth in the sale of wireless converged devices such as "smart" mobile phones and handheld computers, IDC noted. Europe's converged device market is expected to be three times that of the US by 2006.

Steve Balentine, senior manager of marketing for service management company Remedy, said IDC's predictions relied on optimism.

Balentine knows first hand the effects of the weakened software spending, which fell from double-digit growth before 2000 to no growth in 2001. His company is now being acquired by BMC Software after its parent, software maker Peregrine Systems, filed for Chapter 11 bankruptcy protection in September.

"I think their predictions by and large seem to be overly optimistic," he said, adding that many companies are suffering from a technology glut and are not in the market to buy new hardware and software.

"Companies bought quite a bit during the last two years and they're now trying to get it all to work. They're saying, 'why should I buy more?'"

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