IT budgets shrug off Y2K effects

UK companies went on an IT spending spree in the run up to Christmas, brushing aside last minute fears about the millennium bug. According to the...

UK companies went on an IT spending spree in the run up to Christmas, brushing aside last minute fears about the millennium bug. According to the latest Computer Weekly/Kew Associates survey of IT spending, Q4 1999 IT spending rose by 18% - growing faster than any time in the last two years. Overall IT budgets grew by 13.4% in 1999. IT budgets this year are forecast to advance 18%, to £60bn and will be close to £70bn in 2001.

Quarterly growth in IT spend closely mirrors changes in UK gross domestic product. But the Office of National Statistics said last month that preliminary Q4/1999 figures suggested "some weakness in computing services". If this is confirmed, the CW/Kew findings could mean that the Q4 spending spree went mainly on hardware, software and salaries.


The headline figure of 18% growth forecast this year reflects strong spending on internet related services.

This includes:

  • Spending on online information services (for example newswires, market intelligence and subscription Web sites) will grow 49% to £1.2bn

  • Spending on telecoms services will grow 25% in 2000. Next year, users' spend on telecoms will rise by 37%

  • Spending on comms equipment will rise 20% in 2000 and will rise by 36% in 2001.

    Together, these three Internet related categories will rise from 9% of overall spend in 1997 to just under 13% in 2001.

    Mobile computing

    Among the various types of computer hardware, spending on portable PCs is growing fastest: 25% in 2000 and 25% in 2001. However, UK businesses are still wedded to desktop systems: spending on portables is still less than one-third of that on desktops, though the gap is set to narrow in 2001.

    Growth in spending on both PCs and servers stand at 9% in 2000, but are expected to surge next this year, with server spending growth rising to 18% in 2001.

    Millennium bug

    The survey shows that, for most companies, the years of big spending on Y2K remediation were 1998 and 1999.

    Other Y2K effects suggested in the survey include:

  • A blip in spending on proprietory mainframes, which will grow by 14% last year compared to 2% in 1999 and a predicted 2% next year.

  • Healthy growth in spending on software support, with 22% growth this year.

  • Hoarding - the "supplies" category in the survey, which measures spending on consumables like floppy discs and toner cartridges showed growth rates doubling to 24% this year, only to show negative growth (-1%) in 2001.

    Budget breakdown

    Overall figures show that, across the whole economy, spending on permanent staff takes up more than a quarter of all IT budgets (27%), with contract staff adding a further 3% on top. The proportion of IT budgets spent on permanent staff declines slightly over the five year period (1997-2001) but the absolute figure grows from £11bn to £18.2bn.

    Hardware made up 27.5% of the average 1999 IT budget, though this is set to fall to 26.4% this year.

    Software makes up 14% of all spending, and the trend is rising - from 12.3% in 1997 to a projected 14.6% of all spending in 2001. By software category, applications form the biggest segment of software spending (5.3%) and fastest growing. Spending on applications will grow 23% in 2000 and is set to rise 31% thin 2001.

    Computer services - from consultancy to facilities management to maintenance - make up around a quarter of all spending.

    Sector by sector trends

    It is still the retail, finance and computer services companies which dominate UK expenditure on IT. Together they accounted for 38% of all IT spending in 1999.

    IT spend per employee is highest in computer services (£14,376 in 1999) and high in banking and finance (£10,758). However, despite its large overall spend, the retail, wholesale and catering sector spends well below the £2,143 average spend (£1,118). Only the energy and water utilities are in the same league as financial companies in terms of IT spend per employee (£10,198).

    Construction, traditionally the industry with the lowest IT spend per employee, still trails the rest (£564) - but its IT budgets are growing faster than any other sector. Last year construction spending on IT grew 23% which it is set to repeat this year. Only the retail/wholesale sector predicts similar growth level.

    In manufacturing - in particular metal goods and engineering firms - there is a clear trend to heavier IT capitalisation. Together the three sectors representing heavy industry will account for 16.6% of all IT spending in 2001, compared to 15.7% in 1997. However, during the same period the average IT spend per employee will more than double, from £1,617 to £3,318.

    The health service, another sector that traditionally spends well below average, spent £878 per worker last year. But growth in the IT budgets of hospitals and GP surgeries is still below the national trend, at 14% this year and 12% in 2001. No part of the public sector is expanding its IT budget as fast as the national average, although education will be close this year with 15%.

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