IDC: Verticals will get 5.8% boost

IT spending in retail and wholesale industries this year is going to spike -- fueling an 6% increase across 17 vertical markets.

IT spending in the U.S. is expected to rise by 5.8% among 17 key vertical industries in 2005, led by increases in the retail, wholesale and construction markets, according to a new study released by research firm International Data Corp.

Some sectors -- such as retail -- will increase spending much more than the average, the study reported. The U.S. retail market will see a 9.1% IT spending increase, to $22.5 billion in 2005, compared to $20.6 billion last year. The wholesale vertical market is expected to gain an 8.3% IT spending boost, from $14.4 billion last year to $15.7 billion this year. In construction, IT spending is expected to rise by 7.8%, from $3.1 billion last year to $3.3 billion this year.

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The discrete manufacturing vertical, which includes companies that make products assembled from parts, will again lead all vertical market IT spending this year with $46.9 billion in expenditures, up from $44.8 billion last year. Government IT spending will again rank second at $43.7 billion, up from $40.9 billion in 2004, while the banking industry will repeat its third-place finish in overall IT spending for 2005, with $42.5 billion in spending, up from $40.7 billion last year.

Dennis Roell, an IT manager with Betts USA Inc., a Florence, Ky.-based manufacturer of plastic and foil toothpaste tubes, said his recent IT spending backs up IDC's predictions.

Roell said he expects a 6% IT spending increase in his company that will help pay for a regularly scheduled server replacement program.

Spending increases are being targeted for needed projects, he said. "We're not going to change software just for the fun of it," he said. "We're going to change it only if there's a reason to change it."

Richard Gius, senior vice president of IT at Cardinal Health Medical Products and Services in McGaw Park, Ill., said his overall IT spending is expected to get only a slight increase this year, and that will go toward strategic initiatives, including supply chain, customer service and similar upgrades.

But he is nowhere near the overall 5.8% increase forecast by IDC. "I'd give my eye teeth for an increase like that," he said.

Patrick Clancy, director of IT for The New York Academy of Medicine in New York, a public health research organization, said his IT budget will finally go up this year after three years without an increase. The 16% hike in his approximately $600,000 annual IT budget will help pay for increased staff costs and for additional IT consulting services.

According to the IDC study, software spending among the 17 verticals is expected to reach $104 billion in 2005, up 6.6% from 2004, with the largest software buyers being in the services, discrete manufacturing and consumer/home markets.

The U.S. IT services market will hit $180 billion this year, up 5% from last year, according to the report, with the largest increases in the banking, discrete manufacturing and government verticals.

Dropping this year will be the high-end server market, which will drop 3% from 2004 to $4.5 billion in spending this year, according to the study. The midrange server market will increase by 7% from last year to hit $4.2 billion in 2005, led by purchases from the manufacturing and services sectors.

The networking equipment market will reach $26 billion in spending this year, up 8% from 2004, with most of that increase coming from the communications and media industries.

The IDC study was compiled in the third quarter of 2004.

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