European IT market to remain in doldrums, says Goldman Sachs

The European IT market will remain firmly in the doldrums through 2004 as IT departments face declining budgets and focus on cost...

The European IT market will remain firmly in the doldrums through 2004 as IT departments face declining budgets and focus on cost cutting and maintenance instead of new projects, research has revealed.

The latest Goldman Sachs IT spending Survey for Europe, based on interviews with IT heads from 300 top European companies, predicted that IT budgets would decline by an average of 3% in 2003 and a further 2% in 2004.

Most respondents (73%) did not expect to see their IT budgets grow by 5% for at least five years.

More than half (54%) the IT professionals polled in the study said they had deferred IT projects up to four times this year because of budgetary limits. Of those who had postponed projects during 2003, 40% said they would postpone them either to or after 2004 with a further 36% uncertain when the projects would be realised.

However, while spending is postponed in 2003, Goldman Sachs sees potential for some investment in 2004 and those doing new projects report getting increasingly favourable deals from suppliers (77%).

Points of focus for European IT chiefs include security, disaster recovery and outsourcing. The number of respondents predicting an increased spending on applications outsourcing, offshore and networks outsourcing in 2004 was 43%, 39% and 37% respectively. Another growth area is videoconferencing, with 55% of respondents reporting increases in spend on this area in 2003.

However, cost cutting will remain the number one focus for IT professionals in 2003 and 2004, followed by gaining competitive edge. Implementing new technology was the lowest priority in 2003. The importance of making the most of technology already purchased is reflected in the relative popularity of enterprise application integration - 29% predicted an increase in spending in this area - and the fact that 43% have bought licences for software they have not yet implemented.

One of the hardest hit areas is hardware. The majority of respondents said they would cut hardware spending by up to 20% in 2004. Spending on mainframes, PCs and servers will drop by 50%, 44% and 36% respectively.

The consulting market also continues to struggle, with respondents predicting falls in spending on IT and management consulting of 39% and 43%. Consulting was also the area most likely to be hit (86%) if the respondents were forced to make cutbacks in the next six months.

Other low priorities include upgrading to Windows XP. Two thirds (67%) said they had no formal plans to do this for servers, with a corresponding figure of 47% for PCs.

To further outline the conservative nature of spending, more than half (54%) of the respondents expected to have money left out of their budget by the end of the year.

Read more on IT outsourcing