IT spending to grow six per cent in 2005

In making its annual predictions for the upcoming year, IDC said it expects worldwide IT spending to grow 6.1 per cent for 2005, a year which will be marked by “enormous turbulence” and significant consolidation and realignment in several key sectors.

The 6.1 per cent growth, a slight improvement over the five per cent growth rate expected for 2004, means the IT market will exceed US$1 trillion (all figures U.S.) in overall spending, delivering about $60 billion worth of net spending growth, according to IDC executives. The company expects, however, that growth in IT spending will continue to be moderate through 2008.

“This growth has some assumptions tied to it, namely a modest rise in the U.S. growth rate, a mild rebound in Western European countries, the continued weakness in Japan and Latin America, and continued high growth in emerging markets like Central and Eastern Europe and Asia Pacific,” said Frank Gens, senior vice president of research at IDC.

In order to gain a higher growth rate, the industry will need to do a better job at three things, he said. It has to target finer-grained growth segments, it has to deal with an overall environment that “is all about the convergence of individual and soiled market segments,” and it must aggressively attack cost structures.

What will spur some of this higher growth will be the migration by larger IT shops toward more dynamic IT environments, those that innately offer greater efficiency and better business responsiveness. Examples of such environments are embodied in big picture initiatives such as IBM Corp.’s On Demand and Hewlett Packard Co.’s Adaptive Enterprise.

“This focus on a new foundation in IT, which we call Dynamic IT but the vendors call on demand or adaptive, is about the ability to apply flexible approaches based on things like SOAs (service-oriented architectures), Web services, virtualization, and standard components. It is this technical foundation underneath the enterprise that will be the driver for change,” Gens said.

IDC predicted that there would be a concerted quest for “business value” that will force an increasing number of infrastructure players to partner and acquire technologies and companies that can help them zoom to the upper stack of Dynamic IT environments. The firm predicted that in the next year Microsoft Corp. will “make a big move to increase its upper stack leverage.”

“Microsoft understands that the leverage within the enterprise is moving up the stack and getting closer to the business process. So it needs to strengthen its position there. We won’t speculate today on who they might buy, but certainly within the community of application vendors and integration platform vendors is where we believe they will target,” Gens said.

As a side note Gens said he thought the most “underreported merger that didn’t happen” in 2004 was the proposed acquisition of SAP AG by Microsoft. That deal, probably initiated by Microsoft, Gens said, would have been “a very interesting combination to see.”

Not only Microsoft, but its archrivals including IBM, HP, and Sun Microsystems Inc. will continue to buy up companies both large and small in order to fill out their respective portfolios that will allow them to put together a more dynamic infrastructure platform, IDC executives said.

With little surprise, IDC also predicted the continued rise of open source software, including the Linux operating system and compatible middleware applications. The idea of those products being free, however, is a concept that will be on the endangered species list.

“In 2005 open source will continue to expand with Linux accounting for more than 20 per cent of volume server shipments, which is twice the growth rate of Windows. However, it is still less than one third that of Windows share in volume, but it is now getting to a very interesting level. We are seeing a growing number of Linux-friendly IT strategies among large users, most notably the Department of Defense,” Gens said.

Gens added that IDC’s research is showing that users are increasingly moving toward enterprise-grade Linux distributions, ones that are paid for. He said the “romantic notion” of users buying open source because they do not want to pay for it is “a bunch of hogwash” and that in fact there are many other more compelling reasons why users are moving to open source environments.

On the hardware side, IDC expects the market for blade servers to continue to grow in 2005. Dell Inc.’s recent reentry into blade serving alone should continue to provide strong momentum throughout 2005.

“The blade server market will continue to heat up — no pun intended — with Dell back into it. It will add more legitimacy as well as force pricing down among more traditional rack-mount servers,” Gens said.

In other hardware predictions IDC expects the high-end computing appliance model to make another strong comeback, that storage commoditization would continue unabated, that HP will aggressively respond to Dell’s encroachment on its imaging and printing franchise, and that the semiconductor market will correct and then turn upward again in late 2005.

In its picks for which emerging technologies would burn the hottest in 2005, IDC believes “RFID meeting sensors” will be the latest development in that market, mesh networks will take off including ad hoc and peer-to-per wireless broadband networks, and there will be further development of the Semantic Web, a common framework that allows data to be shared and reused across applications.

For more information on IDC’s predictions for 2005 users can go to http://www.idc.predictions2005.

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