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Gartner forecasts scanty software spending

Corporations are feeling cautious in their tech spending, said the market research firm, which also reported that its numbers for last year were overly rosy due to a weak dollar.

A weak U.S. dollar compared to the euro artificially inflated the strong growth reported by U.S software companies last year, and the outlook for future software spending remains modest, according to a research report published on Thursday.

Market research firm Gartner Dataquest on Thursday revised its numbers for last year's overall software revenue and published new forecasts for growth. Currency changes last year, notably the dollars drop against the euro last year, skewed the picture of this year's software spending to look better than it actually is, said analyst Joanne Correia.

At the end of last year, the top 25 software companies reported an 8 percent increase in sales. But, once currency fluctuations were taken into account, the revenue growth at these companies was a more modest rate of 3 or 4 percent, she said.

Limited spending, particularly on new licenses, is likely to be the pattern for the next year. Overall, it's unlikely that the software industry will again see the double-digit growth rates of the past.

"The outlook from corporations is very cautious," said Correia. "Even though we have bottomed out, we're not going to see a swing to 15 percent growth over the next couple of years."

Gartner Dataquest said the annual growth rate of software revenue last year was 4.4 percent. The research company is projecting a 7.4 percent growth in software in 2004, although a large piece of that will be upgrades to Windows desktops and Microsoft Office, Correia said.

Surveys of corporate customers indicate that spending will remain conservative at between 2 and 5 percent. Corporate spending is being driven by requirements to meet industry regulations and build out companies' technology infrastructures.

Gartner Dataquest forecast that growth in corporate spending will pick up around 2005, which will be driven in part by pent-up demand and a move to industry standards. Once companies adopt standards, they will be more willing to spend on software because their systems will be more cost-effective.

"All the major software companies are each in a transition from older proprietary systems to standards...we're right in the middle of the transition," Correia said. "Markets grow when they hit the mainstream."

Gartner estimates that software revenue will grow about 8.5 percent in 2005 and 7.5 percent in 2006.