IT directors will not spend their full budgets in 2003 and their annual spending in 2004 will shrink, according to analyst group Ovum Holway.
Speaking ahead of yesterday's (29 October) annual 2003 Ovum Holway/Intellect presentation in London, Richard Holway, director of the analyst firm, said users would step up demands for "more for less" from suppliers, while offshore outsourcers and software companies would also offer increasingly attractive pricing to IT directors.
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Anthony Miller, research director at Ovum Holway, said IT directors were not spending their full annual IT budgets. "They have money, but are very constrained in what they can spend. I expect annual IT budgets to go down."
Ovum Holway has predicted that this lack of spending will translate to an annual growth in the IT industry of no more than 2%.
"We find it hard to see a time when demand for IT will outstrip supply."
As a result, Miller believed that IT directors will have a strong negotiating hand. However, he warned that no IT supplier could afford to support a loss-leading project.
"Negotiations would show greater maturity," he said, warning that suppliers would walk away from any potential contract that is too restrictive.
Miller said that IT departments' cost cutting had, so far, focused on paring down projects and limiting spending on hardware and software suppliers. With budget pressures continuing, he said organisations would look at making more cost savings within their own IT departments by outsourcing certain areas of IT operations.
"IT managers feel quite comfortable outsourcing their desktop support," he said.
Desktop outsourcing allowed IT directors to reduce the complexity of managing the desktop environment internally, he added.
Miller also suggested there would be fewer big bang, single-supplier outsourcing deals.
"We are seeing more piecemeal outsourcing," said Miller.
Barclays is one example of a company which has taken this approach. The bank is in discussion with Accenture to take on Barclays' application development while EDS manages its desktop infrastructure.
The Ovum Holway predictions are more pessimistic than those of rival analyst group Gartner, which has predicted that IT expenditure by European companies would rise by 3%-4%, up from 0.1% in 2002-2003.
It is also more downbeat than the latest Computer Weekly UK IT Expenditure Report, produced by Kew Associates, which found that spending on IT hardware, software and services by UK organisations in the second quarter of this year was 4.6% up on the same period last year.