Tech spending to rise in 2004, says IDC

Tech spending will increase, IBM will indemnify customers in the SCO suit, and information technology services provided to U.S. customers through offshore labor will double in 2004, market analysis firm IDC predicted on Wednesday.

Things will be fairly upbeat in 2004, IDC said Thursday in its annual predictions for the New Year. The firm in November had expected IT spending to grow about 4.9 percent next year, but now says that recent checks indicate it will grow by 6 percent to 8 percent, or more. An official forecast will come out in January.

"IT spending is more correlated with corporate profits than (gross national product) or other factors, and corporate profits are increasing," said Frank Gens, senior vice president of research at IDC. "It is clear that the improving profit picture is getting CEOs thinking, 'What am I going to do about growth?'"

Gens added, however, that confidence is shaky, and a spate of bad news could halt any growth.

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Overall, tech companies will not spend inordinate amounts of time unveiling new strategic initiatives during the coming year. Instead, most will concentrate during the next 12 months on executing previously elucidated plans. Some will succeed, and some won't.

Besides the recovery in spending, IDC listed nine trends that will shape the industry in 2004. They are:

• The server market will see commoditization. Servers running so-called x86 processors and Windows or Linux will continue to grow at the expense of RISC-Unix servers. In 2004, x86 servers will account for more revenue overall, and Linux will account for 10 percent of the servers sold in the United States. Sun Microsystems in particular will have to devise a way to balance its traditional RISC offerings with servers built from off-the-shelf parts and software. Smaller manufacturers such as Egenera may also hit the big time, IDC predicted.

"Look for the groundwork to be laid in 2004 for major market share shifts in 2007," the prediction said.

On other server notes, IBM will likely indemnify customers in lawsuits involving SCO Group, IDC said.

• Utility computing could become futility computing. "Although manufacturers continue to promote the concept, real investments in server virtualization and other techniques to more efficiently use computing resources will continue to lag," the prediction said.

• Offshore outsourcing will grow. The value of IT goods and services coming to the United States that are produced by offshore labor will hit $16 billion, doubling 2003's total. Not only will large U.S. companies continue to outsource, Indian service providers will gain market share as well.

• IT companies will go niche. To demonstrate the value of their products, large IT suppliers will tailor their offerings to better fit the needs of specific industries. IBM is already doing this.

• Regulatory compliance will prompt demand. Sarbanes-Oxley, the Health Insurance Portability and Accountability Act (HIPAA) and other laws will force CEOs to invest in back-end systems. Other drivers for demand for technology products will likely include product development and improving return on invested capital.

• RFID will be a nonstarter. In regard to radio frequency identification tag technology for inventory control, IDC said: "By year-end, it will be obvious that it will take more than mandates from Wal-Mart or the Department of Defense to drive the kind of money and time investment necessary to deploy the tagging infrastructure, the sensor technology, the operating procedures to use the sensor, and the applications to make sense of the data."

• Wi-Fi will continue to grow. The number of public Wi-Fi hot spots will grow from the current 50,000, to 85,000 by the end of the year, IDC said. Many of these hot spots will go up in Western Europe, where the hot-spot population will rise from 8,000 to 24,000.

Meanwhile, corporations will begin to warm up to wireless and install Wi-Fi in remote offices. Mass adoption, however, is still an open question.

• Spending in China and Eastern Europe will accelerate. Chinese IT spending will hit $30 billion and grow at four times the rate of that of the rest of the world. Eastern European nations, meanwhile, will see a surge in spending as 10 new nations, most from Eastern Europe, join the European Union.

• Broadband will spur convergence. Broadband access will be found in 100 million homes worldwide, or 40 percent of online homes, a factor that will accelerate the convergence of PC and consumer-electronics technologies. "All of a sudden it makes sense to be streaming video and MP3 audio," said Gens. Gateway and Dell, which sell direct and can therefore undercut traditional manufacturers, will become major factors in the market, he added.