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IT market to flourish in 1997

Two new studies say vendors will likely continue seeing strong sales of computer hardware, software, telecommunications equipment, and services.

3 min read
The business is booming for information technology vendors.

According to two new studies released today, vendors will likely continue seeing billions of dollars in sales of computer hardware, software, telecommunications equipment, and services through the end of the decade.

International Data Corporation estimates that U.S. companies and individual consumers bought a total of $253 billion in IT products in 1996. This year, the market will grow by 13 percent to reach $287 billion, according to Donald C. Bellomy, who penned an IDC study published today on the subject.

"The biggest engines for growth are hardware and networking investments for the Internet," said Bellomy. He said PC networking tools such as servers were selling like hotcakes while PC sales are expected to be flat with just 4 percent in growth projected for 1997.

Bellomy, who is also the author of IDC's annual Worldwide Black Book on the world IT market, said the United States spent 3.1 percent of its gross domestic product in 1996 on computers and other IT products, making the United States the undisputed "engine driving the global market."

"While IT spending in Western Europe and Japan has been growing below or only slightly above the nominal GDP growth rate, expenditures...in the United States have been expanding at twice to three times the rate of the U.S. economy as a whole," he said.

Only Sweden spent as big a piece of GDP last year on IT technology, according to the IDC report. Canada spent 2.6 percent of its GDP; Germany, France and Japan spent less than 2 percent of their respective GDPs, while China, which is a potentially enormous emerging IT marketplace, spent a mere 0.7 percent, according to Bellomy.

"The United States is also taking the lead in use of IT services," he said. "Consulting and outsourcing have seen rapid growth, while new market opportunities have sprung up as computer companies, telcos, and service firms expand their offerings."

The U.S. market has posted a compound annual growth rate of 11 percent between 1990 and 1996 and the market outlook is positive through the end of the decade, Bellomy said.

Meanwhile, Dataquest estimates the IT market in the United States was $238 billion in 1996 in a separate study that was also released today. Dataquest expects the U.S. market to grow to $264 billion this year.

Cynthia Moore, a Dataquest analyst specializing in vertical markets and the author of the study, is bullish about IT market growth through the year 2000. She sees new vertical market opportunities opening in broad swaths of IT market segments from hardware and telecom equipment to services like consulting and outsourcing.

While "the differences in IT opportunities can vary dramatically across industry subsegments," Moore expects growing acceptance of electronic commerce, telecommuting, and mobile computing to fuel the market growth in next few years.

The communications, utilities, health care, and insurance industries lead the economy in terms of IT investments, she found. The sales are fueled by a complex cocktail of factors including new Internet and intranet technologies and their growing acceptance. The rapid approach of the year 2000--D-day for old code written decades ago on mainframe computers--is also playing a role in corporate America's IT expenditures, she said.

"But the sizing [of the market] is just the backdrop" to deeper changes underway in terms of product offerings and the way they are used, said Moore.

"Clearly the U.S. market is evolving...Companies that have been more mass-distribution oriented are now increasingly focused on verticalization."

Some companies in the computer, communications, and IT service sectors have responded with offerings tailored to specific industries and market niches. For example, new object-oriented technology has added photographs, graphics, and even video and audio to the types of information that computers can store and manage.

As the technology continues to develop, so will product offerings and market niches, said Moore. In the process, we will see new strategic partnerships and out-and-out mergers as companies that make core pieces of the IT puzzle join forces with niche players that have developed tools that meet the needs of specific industries, she added.