Reasons to be cheerful

2002 will be the biggest IT spending year ever

2002 will be the biggest IT spending year ever

IT spending in the UK will hit its highest peak ever this year, growing at seven times the rate of inflation and more than three times faster than UK gross domestic product.

Let's repeat that, just in case it didn't sink in first time. IT spending in the UK will hit its highest peak ever this year.

That may come as a surprise, given the general doom and gloom that has descended on the IT supply industry.

Over the past few months the national and IT press have regularly talked about the "IT recession", and the second half of last year saw a seemingly endless series of redundancy announcements from IT firms.

But the fact is that overall spending on IT in the UK hit £60.3bn in 2001 and, according to the latest figures from the Computer Weekly/Kew Associates UK IT Expenditure Survey, it will rise a further 6.9% this year to reach £64.5bn. In 2001 the average UK company spent a remarkable £2,480 per employee on all aspects of IT, including hardware, software, services and spending on IT staff. That figure will rise to £2,615 in 2002 and £2,870 in 2003.

So if IT spending is so strong, why is it that IT suppliers are so gloomy?

There are two main reasons:

  • IT spend growth of 6.9% may be great compared to most other sectors, but it is low compared to the growth rates that IT suppliers have come to expect over the past few years, and very low compared to their expectations at the end of 2000. Between 1999 and 2000 IT spending in the UK grew by 12.3%, close to double the current growth rate.

    IT suppliers had planned on the assumption that IT spend growth would continue at 12% or higher. They had set their cost-bases with this assumption and, more importantly, they had set shareholders' expectations at this level. When double-digit growth failed to materialise, the only option open to most firms was to try to slash costs to minimise the profits shortfall.

  • The average growth rate across all areas of IT spend hides a lot of unevenness. For example, in 2001 total IT spend in the UK grew by 8.4%, but spending on hardware grew by only 2.8% and, within that figure, spending on desktop PCs actually fell by 4.1%. So for IT suppliers the picture is dependent on the specific market sector they occupy. For some it really is recession time.

There is one other important change, something that has been brought to a head by the current economic uncertainty but which has roots in the Y2K spending frenzy of 1999 and the dotcom madness of 2000. IT users are now much more focused on delivering clear business benefits from their IT spending.

That may be tough for some IT suppliers used to getting an easy ride from corporate customers but it is a sign of the maturity of IT, and we welcome it.

Overall, this is still a very good time to be involved in IT.

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