Software sales growth to outpace the PC

While the PC hardware market continues to slump, software sales are headed for a mild upturn, according to market researcher IDC.

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While the PC hardware market continues to slump, software sales are headed for a mild upturn, market researcher IDC said Wednesday.

Modest growth is expected next year in worldwide sales of packaged software, according to IDC. Shipments of package software?products like Microsoft?s Office productivity tools and IBM?s WebSphere application software--are expected to grow in the 10 percent to 12 percent range annually by 2006, IDC said.

In contrast, last month IDC forecasted worldwide PC shipments would grow a paltry 1.1 percent this year compared with 2001.

"A slow (software) recovery will begin in late 2002, and we are optimistic about growth opportunities moving forward," IDC analyst Tony Picardi said in a statement. "Despite some positive economic indicators, the climate of economic uncertainty has no doubt kept corporate investment lower than it otherwise would be, thereby slowing software market growth."

Specifically, application software such as enterprise resource planning packages will help drive the recovery, with an 11.5 percent annual growth rate by 2006, IDC said. By then, annual revenue is expected to reach to $131 billion

IDC found overall shipments of packaged software to be fairly consistent worldwide, with no one region expected to better than any other.

For 2001, Microsoft held onto its lead in packaged software, followed by IBM and Oracle. But SAP captured the No. 4 position from Computer Associates.

The leaders are certainly investing heavily with the expectation of big growth. In a research note issued last week, Merrill Lynch analyst Christopher Shilakes noted that Microsoft's Productivity and Services division, which includes Office and Great Plains software, plans to invest $3 billion in research and development over the next five years. Microsoft expects the division to grow 10 percent on average over the next five years, potentially delivering $20 billion in annual revenue compared with $10.3 billion today.

At a conference next week sponsored by market researcher Gartner, Microsoft CEO Steve Ballmer is expected to reveal further details about the next version of the company's productivity suite, code-named Office 11. Currently, Microsoft is soliciting beta testers for Office 11, which is tentatively scheduled for a mid-2003 release.

IDC?s conclusions are supported by other data. Merrill Lynch on Monday said that U.S. and European spending will increase slightly next year, with budgets up about 3 percent. Much of the spending is being consolidated among the larger technology providers. Merrill, which surveyed 100 top U.S. and 25 chief information officers, found that budgets for the current year have declined an average of 2 percent compared with last year. Fourth quarter spending is expected to be flat to down from a year earlier.

Merrill Lynch predicted that revenue from the third quarter to the fourth quarter at computer companies will growth an average 9 percent, compared with 17 percent average sequential growth for the period from 1992 to 2001.