IT spending on its way up? Not so fast

The much-talked-about IT spending recovery - which we're supposed to be in the midst of - is more illusion than reality.

Overall IT budgets for 2004 are basically flat compared to 2003. Seventy-one per cent of firms indicate a less than 5 per cent spending change over the last year, according to a new research report from Quocirca.

European firms continue to spend on IT, but in punctuated 'waves' that mean only a few organisations are investing heavily at any one time. The majority of firms polled by Quocirca identified with the concept of a spending peak that lasts about two quarters, with over 80 per cent saying they'd already experienced one, were in the midst of one or expected one it the near future.

Dale Vile, service director at Quocirca, said: "Organisations are going through catch-up phases as they emerge from their lower spending of the last few years. After the catch-up phase, they return to the previous lower levels of spending."

The catch-up includes projects, such as desktop or server upgrades, that organisations have been putting off ever since budgets shrank a few years.

The post-peak spending may level off at a slightly higher point than pre-peak, but nothing close to the sort of jumps we saw in the late 1990s.

"The recovery isn't one single phenomenon. It's not a case of 'getting back to normal'," said Vile.

It's not all bad news, though. The spending peaks can offer an opportunity for vendors because it is while undertaking these backlogged projects that firms may consider switching suppliers.

The research showed very little change in the amount of spending on internal services. This suggests two things for IT departments: downsizing is over and the lean, business-focused approach is here to stay.

Waves in IT spending are nothing new - they appeared in the late 1990s with CRM and e-business, for instance. Quocirca expects the current catch-up phase to last until the end of 2005. At that point budgets will be driven by investment in areas such as compliance, mobile and grid computing.

"The main point for companies is not to be complacent," said Quocirca's Vile. "Understanding these [spending] dynamics is important and it's imperative for them to understand what will drive subsequent waves of investment" in their particular industries."

The report, titled The Recovery Wave of IT Spending and sponsored by Microsoft, is based on interviews with 441 senior IT staff from firms across Europe and spanning several industries.