War Could Stall Tech Rebound

Unless the war in Iraq drags on, global tech spending will rebound this year, growing 2.3 percent over last year, market researcher IDC said Thursday.

The forecast is actually a downward revision of a more optimistic previous estimate that saw growth of 3.7 percent. IDC made the revision because of the war and uncertainty about the stability of some economic regions.

Optimistic Forecast

Assuming a "relatively short war" and economic stability, IDC predicts technology spending worldwide in 2003 will reach $852 billion. European spending growth is expected to lead at 2 percent, and the United States should see a 1.5 percent increase. IDC forecasts a 1.4 percent decline in Japan, which continues to suffer economic problems, including an unemployment rate that has risen to 5 percent, the highest in a decade.

Growth will be spurred by software sales, with a predicted increase of 4.5 percent worldwide. Hardware sales, however, will continue to slump, with a 0.5 percent decline, IDC analysts said. Spending on services will also increase, with 3.7 percent growth, the market researcher said.

Overall growth will continue next year, with an increase of 4 to 6 percent, and hit 6 to 7 percent in 2005, analysts said. They expect global technology spending to hit $1 trillion by 2006.

Low profits and the business climate are the two top reasons that companies cut back on technology spending, but "a certain amount of pent-up demand from the last couple of yearsa?|will gradually start to overcome these inhibitors," said Stephen Minton, program director for IDC worldwide IT markets. That will amount to a gradual shift toward IT spending increases, he said.

When the war ends, IDC expects an overall upturn in the U.S. economy at least, with other regions also poised to see improvements, said Kevin White, research manager for IT markets and strategies. He also forecasts a stock market rally as part of the rosier picture. Japan will continue to struggle with deflation and overall economic woes, and Western Europe will lag behind the United States in economic stimulus, he said.

"At least in the U.S., I think there are some positive drivers in place and ultimately a U.S. recovery will help other regions recover as well," Minton said.

Networking Spurs Growth

IDC is keen on an increase in network equipment purchases, driven partly by widespread broadband adoption and data network growth. The company predicts the converged handheld market will boost hardware sales, which will have a tough time recovering because of "fierce price competition and continued capital expenditure declines from telecom operators," IDC said.

Outsourcing will be a top growth segment, even though cost-cutting last year disrupted that market, analysts said, forecasting stronger price stability in services contracts this year and next.

Mobility, including wireless services and devices, will take hold as a global trend. For instance, Western Europe will experience a 91 percent increase in spending in wireless services next year, said Vicky Hawksworth, a senior research analyst. Converged devices are "the driving force behind this growth," she said. Such devices combine, for instance, a mobile telephone and a handheld computer.

However, short-term gain in mobile markets alone won't translate into overall technology health in that region. "In the medium to long term, the outlook is certainly positive for the European markets, but in the short term, the prospects for any significant rebound remain limited," Hawksworth said.

The outlook also remains mixed in Asia. If Japan is taken out of the mix, the forecast looks better; China is expected to experience a 7 to 8 percent growth in gross domestic product next year. Insurance and banking companies are moving into China, and the telecommunications sector there also shows promise for growth, IDC said.

Australia will continue to be strong, and Southeast Asian countries will stay on the road to recovery, IDC predicts.

Emerging markets still have "pretty positive growth expectations over the next few years," assuming they remain stable, Minton said. However, the Middle East remains a big question mark because of the effect a prolonged war would have there.

"If the war goes on longer, that region will take a big hit" to its overall economy and in technology spending, Minton said.

Yet, assuming the war is not prolonged, IDC forecasts a gradual recovery for corporate profits after it ends. Business confidence will also improve, which will mean a global increase in technology spending, the analysts said.