Tight budgets mean IT chiefs will go for bargains, not loss-leaders

IT directors will not spend their full budgets in 2003 and their annual spending in 2004 will shrink, according to analyst group...

IT directors will not spend their full budgets in 2003 and their annual spending in 2004 will shrink, according to analyst group Ovum Holway.

Commenting on last week's annual 2003 Ovum Holway/Intellect presentation on IT industry prospects for 2003, Antony Miller, research director at the analyst group, said "IT directors 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 would translate into 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," said Miller.

Miller said this meant IT directors would have a strong hand in negotiations with suppliers, but warned that no IT supplier could afford to support a loss-leading project. Suppliers would walk away from any potential contract that is too restrictive, he said.

So far, cost cutting in the IT department has focused on paring down projects and limiting spending on hardware and software. With budget pressures continuing, there will be increased outsourcing but with fewer big-bang, single-supplier deals. "We are seeing more piecemeal outsourcing," said Miller.

One company that has taken this approach is Barclays. The bank is currently in discussion with Accenture about taking on its application development. EDS is managing its desktop infrastructure.

The Ovum Holway predictions are more pessimistic than those of rival analyst group Gartner, which predicted that IT expenditure by European companies would rise by 3% to 4% next year, up from a flat 0.1% in 2002-2003.

It was also more downbeat than the Computer Weekly UK IT Expenditure Report, produced by Kew Associates, which found that spending on IT hardware, software and services in the second quarter of this year was 4.6% up on the same period last year.

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