IDC: Uneven future for tech spending

The market research firm says information technology spending in 2003 will vary by industry, with manufacturing, banking and government leading the way.

Ed Frauenheim Former Staff Writer, News
Ed Frauenheim covers employment trends, specializing in outsourcing, training and pay issues.
Ed Frauenheim
3 min read
Manufacturing, banking and government are the industry sectors set to spend the most on information technology in 2003, research firm IDC said Thursday.

Worldwide IT spending by "discrete" manufacturing companies--those that make goods by assembling individual parts--will reach $121.9 billion, while banking organizations will spend $107.5 billion and governments $96.6 billion, Framingham, Mass.-based IDC said in a report.

IT spending by retailers and wholesalers will reach 85.5 billion, and the process manufacturing industry--which involves making goods through one or more procedures, such as oil refining--will spend $70 billion on IT.

Those figures are part of what IDC foresees as a pattern of uneven IT spending across different industries over the next year. Last month, the research firm predicted global spending on information technology and telecommunications would grow by more than 6 percent this year, reaching $1.9 trillion.

The prediction was welcome news for an IT industry eager to climb out of a slump. A survey published earlier this month by Goldman Sachs offered a dimmer view, concluding that average business spending on computer hardware and software will decline by 1 percent this year, compared with last year.

In any event, the IDC report unveiled Thursday suggested companies selling IT gear and services will have to be selective in targeting customers. IDC analyst Meredith Whalen says that IT spending will rise in most markets but fall year-over-year in the communications and media fields and in the transportation and transportation services industries.

Whalen portrayed the North American business climate as full of fear, uncertainty and doubt in the wake of high-profile bankruptcies, the Enron scandal and questions about the health of corporate profits. Just 42 percent of company leaders polled by IDC in October thought business prospects in their country would improve in six months, Whalen noted.

Other IT spending targets by industry
Communications $62.1 billion
Business services $61.3 billion
Insurance $38.1 billion
Other financial services $32.3 billion
Education $31.9 billion
Health $26.9 billion
Utilities $26.7 billion
Transport $23.6 billion
Agriculture, construction and mining $22 billion

Source: IDC

What's more, technology companies haven't hit on the next big thing that will spur business spending. "We're not seeing a new killer application, like we saw with the Internet," Whalen said.

On the other hand, Whalen said companies offering information technology can take heart from the Department of Homeland Security. She expects the new government agency to dole out $2 billion in information technology deals. Disaster recovery and security IT products will be vital to the government sector, IDC predicted.

Whalen said a wide variety of other industries are willing to spend money on IT products to help solve "pain points." For example, the need to bolster banking customer loyalty makes customer relationship management (CRM) the top IT investment area in banking. In retail, companies will seek to serve customers better through in-store systems such as self-checkout systems that allow for faster shopping, Whalen said. The insurance industry, meanwhile, will focus on protecting customer information through new data security systems.

Even the battered telecommunications industry will be willing to cough up money to reduce the turnover, or "churn," of their customers, Whalen said. That translates into budgets for CRM systems, she said.

The IT spending picture varies also by global region, according to the report. In Western Europe, key opportunities include business management software systems for small and medium-sized retailers and CRM systems for utilities. In Central and Eastern Europe, the liberalization of telecommunications and a boom in mobile communications is spurring IT investment.

Telecommunications also is a key industry for the Asia-Pacific area, IDC said. As the wireless communications market matures in this region, service providers will want to hold onto their customers, said Gary Koch, IDC analyst for the Asia-Pacific region. "CRM opportunities are considered likely for this segment," Koch said.

In Latin America, the currency devaluation in Argentina has made wages attractive and is helping to spur manufacturing in the region, said IDC Latin America analyst Alex Manfrediz. Manfrediz predicted that by 2006, manufacturing will rise from its position as the region's third largest sector--when it comes to IT spending--to the largest.