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Online Extra: Info Tech in Middle Age


It's hard to get very excited about the tech industry's continuing recovery. For the most part, buyers -- be they consumers or corporations -- are keeping their purse strings pretty tight. Spending on computer hardware, for instance, is expected to rise just 6.2% in 2005, not much more than the 4.8% gain recorded last year, according to market researcher IDC.

So what gives? BusinessWeek Correspondent Andrew Park recently spoke with IDC Senior Vice-President Crawford Del Prete about the firm's modest 2005 info-tech predictions. Here's an edited transcript of their conversation:

Q: With the economy strengthening, what's the outlook for overall IT spending?

A: What we've seen in the last few years is where the global economy goes, inevitably information technology goes. IDC is expecting total IT growth to be about 5% in 2004. We expect that it will be relatively flat -- about 6.4% -- until 2008 on a compound basis.

Q: That's good but not great, right?

A: The days of the double-digit growth of the industry are behind us. We are a maturing industry that's going to settle down to more steady growth rates.

Q: What are the bright spots?

A: One is networking. We believe that growth will accelerate up to about 11% or 12% annually between now and 2008. A lot of that is based on need for incremental capacity for voice over Internet protocol (VoIP) phone service.

Q: Why is VoIP suddenly so hot?

A: The services have gotten better and more tied to corporate needs. Now it's really useful in the call center, and there are even consumer users.

Q: What else is going to be big in 2005?

A: Handhelds are becoming phone-enabled. As they become phone-enabled, they become more useful to a broader number of people. For consumer markets, there's a gee-whiz factor. But in the enterprise, you want something that's going to make you be more productive.

Q: Speaking of consumers, will demand for digital gadgets like the iPod remain strong?

A: We're seeing 30 to 50 new products come out a month. The barriers to what you can build at a certain price point have come down. People are just connecting, and they're going to keep connecting in different ways.

Q: Will prices for computer hardware continue to come down, or do you expect component shortages to slow that?

A: I don't see critical shortages. Yes, there are spot shortages. But I don't see any critical spot where you're going to see less than precedented price declines. Think about Intel (INTC) wanting to win back share [from AMD (AMD)]. What do you think is going to happen to pricing?

Q: What's the mood of corporate tech buyers as the new year arrives?

A: Our data says CIOs are feeling more positive. Each quarter, we ask 500 CIOs about the likelihood that they'll increase their IT budgets in the next 12 months. In the third quarter, 52% answered positively. A year ago, about 31% were positive. Their companies are starting to grow again, and they're growing their top lines.


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