Techs Midterm Outlook: Doom, Boom or Something in Between?

This year's progress of the IT market may depend on your outlook: Are you waiting for a recovery or waiting for the boom to return? takes stock of both the hardware and software markets and asks analysts to check their top-of-the-year prediction

For the past three years people have asked when will the IT industry recover from the 2000 bust only to be told again and again that they would have to wait until at least the second half of the year.

It is now the second half of 2004 and it looks like the recovery that actually started in mid-2003 is continuing slowly but steadily. Or so analysts advise.

Some people are still asking when the recovery will start. But the question is whether they are waiting for a recovery or waiting for the boom to return. If theyre waiting for the latter, they are going to wait a long time.

The industry has changed a great deal since 2000. So have the corporate customers who buy the hardware and software. The Y2K modernization campaign is history. Companies are buying replacement hardware and software only when they have gotten full use and value out of older technology.

Furthermore, the servers they are buying today are not only more powerful but also less costly than the earlier generation equipment they are replacing.

The grow-at-all-costs urgency that drove companies to buy any technology that promised to cut costs or enhance productivity, no matter how new and untested, is long gone. Gone also are so many of the new economy companies that were leading the buying frenzy.

Today technology purchases are carefully budgeted and approved only after long and diligent consideration.

At the end of last year when looked at the tech outlook for the server market for 2004, it was clear to us that buyers would continue to take advantage of significant advances in price and performance in the latest server technology.

As our midterm hardware market report shows, IT managers are willing to spend nearly all that they budgeted for new equipment purchases. Those price-performance improvements are allowing buyers to stretch their hardware dollars further than ever.

Overall, though, spending on hardware is expected to be flat to down, with some exceptions, according to industry analysts.

/zimages/6/28571.gifClick here to read eWEEK.coms midyear report on growth in the computer hardware sector.

In the software area, our predicted that Linux, security products, data center and storage management products would all compete for IT managers attention and dollars.

Our midyear reality check has born this out as spending on enterprise resource planning software has been less robust.

/zimages/6/28571.gifClick here to read our report on growth prospects in the software industry for the second half of 2004.

But that didnt keep some of the larger software companies reporting strong sales in the second quarter of 2004. Microsoft Corp. reported a 15 percent revenue increase. Computer Associates International Inc., SAP AG, and EMC Corp. are among the other companies that reported strong sales growth.

Microsoft also showed this week that it is not going to rest on its laurels after reporting stellar sales and profits. In particular, Microsoft showed that its not going to take lying down the news that SAP was the only company that had outperformed it on a compound annual growth rate basis.

Microsoft Chief Financial Officer John Connors noted that the company has stoked the long-term growth engines with $35 billion going into the client and information worker business. However, there are few companies in the software industry that have that much money to invest.

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John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...