U.S. Tech Industry Has Begun its Recovery

Emerging from a difficult 2009, the technology industry has begun to recover. New research forecasts the U.S. IT market to grow by as much as 8.4 percent this year and the global IT market to grow by upwards of 7.7 percent.

 

Technology spending appears to have hit bottom toward the end of 2009 and started to turn around late in the year, according to Forrester Research, Inc.

 

In its U.S. and Global IT Market Outlook: Q1 2010 report, released this month, the research firm forecasts the $741 billion United States information technology (IT) market to rise 8.4 percent in spending, to $550 billion, this year.

 

The latest estimate for growth in U.S. tech is more optimistic than Forrester's January forecast of 6.6 percent, thanks to higher-than-expected demand for communications equipment.

 

Meanwhile, the global IT market is now expected to grow by 7.7 percent, to $1.6 trillion in U.S. dollars, a decrease from the 8.1 percent projected in January. A stronger dollar and weaker euro resulting from a debt crisis in Greece are now expected to dampen some of the global growth, Forrester says.

 

The new Forrester report follows the International Data Corporation (IDC) Executive Advisory Group's projection of 3 percent growth in worldwide IT spending and less than 3 percent in the U.S.

 

"IDC's forecast of 3 percent growth in worldwide IT spending is at constant currency, and does not assume future fluctuations in the value of the U.S. dollar or other international currencies over the next 12 months," IDC, a global provider of market intelligence and advisory services said earlier this year. "If the U.S. dollar weakens in 2010, the actual recorded growth of IT spending in U.S. dollars may be significantly higher."

 

IDC has forecast worldwide IT spending to reach $1.48 trillion in 2010, below the $1.5 trillion recorded in 2008. (See: As the Economy Goes, So Goes Tech Spending)

"Following a decline in overall tech spending of 4.5 percent at constant currency in 2009, IT spending will not fully recover from the global recession until sometime in 2011," Stephen Minton, vice president of worldwide IT markets and strategies at IDC, said in a statement. "Despite pent-up demand for upgrades and new applications following the deep spending cuts of the past year, economic uncertainty will combine with capital and credit constraints to inhibit spending in mature economies."

 

Although spending on communications equipment is higher than Forrester previously predicted, the research firm expects computer equipment and software sales to lead the industry's gains. Personal computers (PCs), peripherals and storage devices are forecast to be top sellers among computer hardware, with "operating system software and applications setting the pace for software," Forrester reports.

 

In constant currency, IDC expects global hardware spending to grow by 5 percent in 2010, software spending to grow by 2 percent and IT services to grow by 3 percent. In the hardware segment, worldwide PC spending is forecast to rise by 3 percent this year, up from the previous forecast of 2 percent growth. The forecast for servers, storage, hardcopy peripherals and network equipment have also been raised.

 

Recent financial reports and earnings forecasts from major tech firms indicate that sales of enterprise technology products are rebounding. The Associated Press reports:

There are clear signs that corporate spending on technology — a major driver of sales for technology companies — is steadily rising. Intel Corp. — the world's biggest maker of computer microprocessors — reported Tuesday that its first-quarter profit nearly quadrupled as corporations upgraded their workers' laptops and bought new computer servers. And in Oracle Corp.'s latest quarter, which ended in February, revenue from new software licenses rose for the second consecutive quarter. Oracle is the world's No. 1 maker of database software.

 

While enterprises and small and midsized businesses (SMBs) are starting to spend more on computer equipment, albeit slowly, IDC says that the gradual economic recovery in North America "will enable many U.S. organizations to relieve some of the pent-up demand for system and network upgrades following last year's spending cuts."

 

Both analyses say cautious spending will continue, with SMBs struggling to fund new IT initiatives. Forrester does not expect IT services and projects to fully ramp up until companies focus more of their budgets on licensed software purchasing.

 

On an industry basis, Forrester expects U.S. manufacturers, financial services firms, utilities and health care to see the strongest growth in 2010.