IDC: Software spending to pick up in 2003

Despite economic difficulties tied to accounting scandals and to the looming prospect of war on Iraq, revenue in the worldwide packaged software market will grow by around 4 percent in 2003, after slower growth of around 1.5 percent in 2002, according to IDC.

Applications such as operating systems and business software will be the largest area of spending in the software market in 2003 as compared with 2002. Global spending on applications will grow to US$131 billion by 2006.

Meanwhile, application development and deployment promises to be the fastest-growing software segment through 2006, growing 11.5 percent annually, according to a statement released by IDC.

"Application development is something that has been put off for several years because of the recession. Companies have been saying 'new tools for our developers? we can put that off.' But the emergence of Web services and XML-enabled tools to develop those services are a reason to buy those new tools." said Tony Picardi, senior vice president of global software at IDC.

Growth in the software market is expected despite the lack of any obvious "killer app" to stimulate development, said John Gantz, Chief Research Officer at IDC's Global Research Organization during a conference call to discuss the IT forecast.

Despite a cautious environment amongst buyers of information technology, polls conducted by IDC showed a willingness to purchase necessary technology, according to Gantz. Chief information officers polled by IDC were optimistic about the prospects of the U.S. economy and their own companies and expect to increase their IT spending about six percent over the next year.

In the United States, operations management, technology services, and software will be among the largest growth areas, percentage wise, in 2003, with the market for PCs and computer storage continuing to show little growth or shrink, according to IDC.

Outside of the U.S., the Asia-Pacific region is expected to see substantial growth in IT spending, with China and India predicted to be the largest markets for technology companies amongst emerging markets, according to statements made by Stephen Minton, IDC's Program Director of Global IT Markets and Trends. Those two countries are expected to see growth rates of about 20 percent in IT spending in 2003, from around 10 percent growth in 2002.

"Growth in China and India has been slower as a result of the global economic slowdown, but it's beginning to pick up," said Minton.

"Companies in those countries are beginning to make more sophisticated use of their (IT) infrastructure. They've been buying PCs and servers and are beginning to implement IT departments--things we take for granted in the U.S. and Europe. We're expecting the growth rates in software in those countries to be higher over next few years as companies find out how to make better use of their technology."

In addition to Minton named the Philippines, Vietnam, and South Korea as countries with fast growing IT markets. In Eastern Europe, Bulgaria and Hungary were described as stable markets for companies looking to expand.

Despite the generally hopeful outlook, however, Gantz noted that factors such as the growing prospects for war with Iraq and corporate accounting scandals that are continuing to unfold could upset predictions for growth in 2003.

Regarding Iraq, Gantz said that IDC is operating with the assumption that there will be U.S. troops on Iraqi soil sometime during 2003 and that a spike in oil prices resulting from armed conflict could upset markets, particularly in the United States.

"If there is a war, the question becomes how its carried out, and how effective it is," said Kevin White, Research Manager and Economist at IDC.

Gantz also sounded a warning about continued fallout from changes brought about by the accounting scandals at companies such as Worldcom, Enron, and Global Crossing.

"We don't believe the system has understood the implications of changing accounting rules yet. Restructuring charges or other charges across multiple years could depress profits," said Gantz.

Those concerns aside, Gantz and other IDC analysts said that despite slow growth in 2003, technology spending will increase in coming years as companies look to technology to gain efficiencies in their business processes, more and more households move to broadband Internet access, and as computing technology expands from personal computers to mobile computing devices and embedded computers.

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