Higher than expected U.S. IT spending during 2004 will help sustain the economic rebound in the tech sector and gradually lead to new jobs, according to updated data from Forrester Research released earlier this week.
The Cambridge, Mass-based analysis firm raised its forecast for U.S. IT spending growth from 4% to 5% in 2004, in light of stronger-than-expected economic growth revealed in 2003 year-end GDP and financial reports.
Forrester also recently finished its first CIO Confidence Poll, a quarterly survey of CIOs designed to measure their opinions on the health of their businesses, industries and spending plans. Overall, the research firm found that CIOs were upbeat about the business climate and economy as a whole.
Andrew Bartles, a research analyst with Forrester, explained that while a rebound is evident in the tech sector, it's by no means in the midst of a spending boom like the one experienced in 1999 and 2000.
Bartles said Forrester decided to raise the spending forecast for this year because 2003 turned out to be a big year for sales of new equipment, providing a big base to grow on as IT departments spend money on upgrades, software, maintenance and the like.
"The major reason [the forecast increase] is significant is that it actually solidifies the tech recovery," said Bartles. "The recovery which started last year is stronger than many suspected and could be sustained."
Bartles pointed out that this upsurge in IT spending would eventually lead to new jobs for both vendor companies and end user companies purchasing new equipment. Vendors will eventually hire new people in order to help them keep up with demand. End user companies will eventually need to hire people to run the new equipment.
At first, Bartles predicts that companies will hire consultants rather than permanent in-house workers.
"As companies get more confident they will replace consultants with fixed cost skill and permanent workers," Bartles said. "Expect to see a bit of hiring picking up as the year progresses."
According to Forrester's research, computer hardware will grow by 10% in 2004 and software will grow by eight percent. Software sales will focus on infrastructure and security, but the company says there will also be growth in enterprise applications. Forrester predicts that growth for networking and communications equipment will be much lower at about one percent. The company says this is because several major investments were made in this area at the end of 2003.
In addition to the healthy news about sales, Forrester's CIO Confidence Poll found that more than two-thirds of respondents expect the overall business climate to improve in 2004. The poll surveyed 112 CIOs, with 75% representing enterprise-class companies with 1,000 employees or more.
Forrester reports that more than half of the CIOs surveyed said they expect IT spending to remain right within budget for the remainder of 2004.
Bob Denis, CIO of Trimble Navigations of Sunnyvale, Calif., agrees with those findings. Overall, Denis said, he is confident about the economy, but still very cautious about how his department spends money. Despite the positive economic outlook, he said there is still a great deal of pressure to accomplish "more with less."
Denis said the days of the dot com bubble and spending frivolously are long gone and that companies who want to succeed must concentrate on being smart with their dollars and providing a solid product.
"You have to work hard to make your buck," said Denis, whose company managed to triple its stock price during the recession of the past three years. "How good you are is what is important now."
"You can't be foolish out there anymore, throw money around and come up with products that nobody wants," Denis added.