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Aberdeen: Hardware in for a stumble, China will shine

IT spending worldwide will be driven by software sales -- at the expense of hardware -- through 2006, according to new research by Aberdeen Group.

Spending on IT products and services has hit rock bottom. Now comes the recovery, albeit a modest one. According to new research from Aberdeen Group, worldwide IT spending will total $1.26 trillion in 2003 and will grow to $1.44 trillion by 2006.

In its recent report "World IT Spending 2003-2006: Measuring the Incremental Recovery," Boston-based Aberdeen Group predicts that spending on IT software and services will far outpace hardware spending during this period. Additionally, the research firm envisions China as an IT powerhouse by 2006.

As for this year, Aberdeen said IT spending will increase by 3.6% in the United States and 4% worldwide. "Aberdeen's research indicates that IT spending has hit bottom. However, we do not forecast a return to double-digit growth rates worldwide [seen in the 1990s]," the report said. Rather, IT spending will rise yearly by about 4-5% globally and 5-6% in the United States from now through 2006.

Authored by Hugh Bishop, senior vice president of Aberdeen's emerging technology intelligence group, and Wyeth Lynch, senior research associate, the report paints a dismal picture for investment in hardware.

"For 2002-2006, hardware spending growth will be eclipsed by expansion in software and services spending," the report said. During this period, spending on software will jump by 27.2% and IT services will see a 17.7% rise, while hardware spending will lag far behind with an 8.3% increase.

And the reason for hardware's struggles?

"The slowing growth of hardware spending can be attributed to the fact that enterprises will continue to seek ways to leverage their infrastructure, as well as continued improvements in price/performance," according to the spending report.

Aberdeen said that the need to integrate old and new applications -- across a variety of hardware platforms -- will drive services spending. As for software's rise, that will be due to companies trying to "take advantage of new business applications, particularly in the midmarket."

On the world IT stage, China is about to shine, Aberdeen said.

"The most significant mega-trend is China's transition from the number six [market for IT products and services] in 2001 to the number three spot in 2006," the Aberdeen report predicted. During this period, China will vault past the likes of Germany, the United Kingdom, France and Italy.

"Although government control remains tight, newly privatized government corporations and the rapidly increasing private sector, based on the country's coast, will fuel increased IT spending," Aberdeen said.

While praising China's IT strides, Aberdeen also hedged its bet by noting that China's vast population of impoverished people and its periodic international disputes could prove to be wildcards affecting growth.

Following are some of Aberdeen's other predictions for 2003:

  • Business integration in all of its forms will continue to command a large portion of corporate budgets.
  • The "information utility" model for storage will grow in popularity, and storage will no longer be considered a peripheral function.
  • Linux will continue to make inroads in the enterprise. This year, there will be a 40% growth rate in the number of Linux servers deployed.
  • Outsourcing in all forms, including IT and business process outsourcing, will constitute a greater portion of corporate budgets.
  • Total economic losses this year due to identity theft will rise to $24 billion, compared with $8.75 billion in losses during 2002.
  • Wireless data services in the form of Wi-Fi, or wireless fidelity, will be a rare bright spot for the telecommunications industry. The trend will be driven by residential adoption of Wi-Fi technology.
  • On the supply chain front, many businesses will create a common infrastructure for running, integrating and inter-operating business processes that can be shared internally across divisions and externally with suppliers.


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