2003 saw the industry take its first tentative steps towards recovery. Will 2004 be the year when the up-tick in technology investment starts in earnest? And if it is, what technologies and trends will drive the recovery?
Mike Lynch, chief executive of information management company Autonomy, is the UK's next best thing to an IT figurehead, being this country's first Internet billionaire, albeit briefly. He believes there will a recovery but that budgets will continue to be tight.
"It looks like we can expect some form of recovery in 2004, but it will be very return-on-investment focused," he says. Although budgets will be up, many large companies will try to keep hiring to a minimum to avoid too many overheads if the recovery takes longer than expected, he claims.
Emerging technologies such as Wi-Fi will become ubiquitous but there is still a big question mark over whether anyone will make money, adds Lynch. He believes that although there will be more money changing hands in the industry as a whole, there will continue to be consolidation amongst software suppliers.
"Loss-making software companies will be consolidated out and we will end the year with fewer but stronger software companies," says Lynch.
A trawl around the analyst community reveals a divergent set of predictions for 2004 but the general theme seems to be that some slack may have appeared in the tightly drawn purse strings that typified 2003.
Analysts Gartner and Soundview point to a modest recovery over the next year with capital spending budgets beginning to grow again at a rate of around 1.6 percent. "The prior 'stall mode' has finally begun to give way to controlled spending," says Soundview technology strategist Arnie Berman.
But Berman claims the strict focus on return on investment that became the watchword for 2003 will continue well into next year, and for the largest companies this could translate into an IT budget that is "flat to down".
Although technology managers are more optimistic about their company's general performance they are not convinced that they'll get to reap any of the benefits, says Gartner.
"While corporate IT buyers are highly confident their employers' business prospects are rebounding, they are less confident that this rebound will translate into improved IT spending," says Gartner vice-president Brian Smith. "Historically, business confidence tends to lead IT spending confidence in an economic recovery."
Forrester Research has decided to stick its head slightly higher above the parapet than Gartner, and is predicting an increase in overall IT spending of 2.6 percent next year, compared to 0.8 per cent last year -- in Europe at least.
But drilling into the figures, although the outlook seems healthier than Gartner's predictions, some European countries will fair better than others. Spending will grow at a healthy rate in the UK and France but will remain flat or even drop in Germany and the Netherlands, according to Forrester senior analyst Charles Homs. "The UK is Europe's fastest-growing market for IT spending, with 6.5 percent growth in 2003 and a planned 6.2 percent in 2004."
All this sounds very encouraging for UK IT managers -- so long as Forrester is the only analyst firm you talk to. Market research specialist NOP has released figures that almost completely contradict Forrester's findings. German companies are actually the most optimistic in Europe when it comes to technology spending, with a 5.8 percent increase in investment planned for next year, compared to just 2.6 percent in France and 4.7 percent in the UK, according to the analyst firm.
"In Europe, the investment picture remains patchy, with only German organisations planning a noticeable increase in their IT budgets after several years of tight cost control," says Richard Jameson, managing director of NOP World Technology.
But although the NOP figures portray spending patterns for the UK and Germany that are opposite to Forrester's, the overall rise in spending figure for Europe is actually higher -- at 4.4 percent -- than Gartner (1.6 percent) and Forrester (2.6 percent). But NOP reserves its highest predictions for the States, with US IT investment rising by six percent stateside compared to 4.4 percent in Europe as a whole. "With recent macro-economic data in the US all heading in the right direction, corporate investment in technology appears to be holding up well," says Jameson.
The NOP survey also highlights a disparity in confidence moving up the IT management ladder. Taken as a whole worldwide, CIOs, CEOs and other senior staff predict a growth rates of around 8 percent in IT spend compared to predictions of around 4 percent for IT managers. This difference may indicate that senior executives haven't actually told the rest of the organisation about plans to increase IT spending, NOP suggests.
But despite citing figures way above that of any other analyst organisation, NOP's Jameson is still cautious about the outlook for the next 12 months. "Big-ticket investment in emerging technologies looks likely to remain a hard sell for the foreseeable future," he says.
If a real recovery is on the cards next year, what technologies are companies going to be investing in and what trends will drive overall growth in tech spending?
A lot of noise is being made about desktop Linux, and with Sun now offering a complete package, companies might start to see it as a serious option rather than a bargaining tool for Microsoft licensing meetings. 2004 will be the year that Linux will reach "tipping point" as a low-cost operating platform -- for the first time making up over 10 percent of server sales in the US, according to IDC.
With a current take-up rate of more than 45,000 a week, according to Oftel figures, there should be roughly 2 million extra broadband users in the UK by the end of next year, taking the total to 5 million. Broadband access worldwide will rise to around 40 percent of Internet homes, while 2004 will be the last year in which high-speed access will be in less than half of US homes.
Public sector investment
With private sector spending tentative at best, the vendors, consultants and service providers will continue to look to government projects for sustenance. Whitehall awarded contracts worth some worth some £8bn during the second half of 2003, according to a report from Goldman Sachs. The trend is set to continue into next year, as the 2005 deadline for joined-up government looms.
Around a quarter of respondents to a recent survey from analyst IDC put networks and telecoms technology as the top priority for the next 12 months.
Given the number of viruses and worms doing the rounds in 2003, it seems IT managers want to go into next year prepared for the worst. About a quarter of respondents to the NOP survey put software as warranting the biggest rise in investment through 2004, with a growth rate of about seven percent.
IDC claims utility computing is a good long-term bet -- but for 2004, "Utility computing equals Futility Computing". There is still too much confusion about the meaning and value of the utility model and it's not until vendors move from "simple, broad visions of utility computing to segmented, solution-focused views" that real change will happen.
Almost all mobile phones come with GPRS or CDMA2000 so there should be a decent population of terminals at which to target wireless data, according to analysts Ovum. After "huge technical teething troubles", mainstream 3G services and handsets should become more widespread, being adopted mainly by "power users" after higher speeds. The business model for public wireless LANs is still unclear but "2004 will give us answers to some of the questions" according to Ovum analyst Julian Hewitt.
WLAN in the enterprise stalled in 2003 but IDC predicts companies will begin to use the technology in small and temporary offices. Large office use will be limited to conference rooms and common areas.
Grid computing will start competing with supercomputers as a new, inexpensive platform for solving intensive tasks, according to Gartner. This increase in server virtualisation will also help to improve server utilisation rates which should boost cost efficiencies. A recent UK government report cited a grid computing project as an example of the kind of innovative technology that warrants more public funding.