Gartner Inc. says IT spending by U.S. organizations will increase 5.5% in 2006, with major outlays on mobile devices and a renewed focus on applications. The biggest spenders on technology in 2006 are businesses with 20 to 99 employees, which plan to boost IT budgets 7%. That is in sharp contrast to organizations with 500 to 999 employees, where IT spending in 2006 will rise a modest 2.4%. But spending on security and storage -- two hot button issues in 2005 -- will cool.
So don't break out the champagne just yet.
While indicative of a recovery in IT spending, the increase is more modest than appears, cautioned Gartner. In many industries, projected revenue growth in 2006 will outstrip the growth in technology budgets. So, while IT spending in absolute dollars will rise in 2006, when measured as a percentage of revenue, some IT budgets will actually decline. Factor in inflation and the stepped up demand for IT services, and the rise in technology spending "will seem undetectable for many IT organizations," according to the Stamford, Conn.-based research firm.
In addition, IT departments will continue to be spread thin. Gartner said managers are planning only slight increases in staff spending and will reduce spending on IT contractors. The biggest outlays for staff budget in 2006 will go to project and program management, IT administration and system and network management.
"Despite the increase, the message to IT managers is clear: You must continue to improve the efficiency of established IT investment areas, if you want to fund substantial growth in IT or add IT professionals to the workforce," said Barbara Gomolski, lead author of the report.
Among industries, the service sector will see the largest year-over-year increases, projecting an 11% boost in IT budgets for 2006 and the only industry with double-digit growth. Manufacturing is the weakest, projecting a decline (less than 1%) in IT spending even though revenue spending will rise an average 4%. Financial services -- where technology spending is typically robust -- is planning a modest 3.4% increase in 2006.
In terms of spending priorities, Gartner found that software gets the biggest boost, with 3% increases over last year. The survey indicated that budgets for application development tools will increase by more than 40%, as managers increase application integration and middleware software expenditures by more than 35%.
The biggest reduction will be in back-office software, where managers expect to slash spending by 6%.
In distinction, budgets for IT hardware will remain relatively flat in 2006, as will money allocated to external service providers. The survey turned up some interesting priorities in the relatively flat hardware budgets, with bigger portions going to personal digital assistants or PDAs (up 41%), hardware desktops (14%) and for laptops (6%). Respondents said they will reduce their budgets for servers and storage hardware by 5%. Networking/telecommunications and IT staff budgets will increase just 1%.
A final caveat: The annual outlook, which surveyed 1,500 U.S.-based IT managers from June through August 2005, does not take into account the effects of Hurricane Katrina. While some economists predict that post-Katrina reconstruction will offset the losses from the storm, with no net loss to U.S. gross domestic product, others disagree. What happens to the price of oil in the wake of Katrina is still uncertain, but it's not the only wild card. The insurance sector will almost certainly realign IT spending and a further drop in consumer confidence could send rippled through the retail sector. Bottom line: Gartner does not expect IT budgets to change significantly as a result of the disaster. But the firm did cauion that Katrina introduced more "uncertainty into an otherwise rebounding U.S. economy."