Software Spending to Grow at 7% Per Year Until 2008

By Geoffrey James

Long-term prospects for software sales in North America look good in the long term, but may be weak in the short term, according to a poll of 195 CIOs conducted by Forrester Research, a high-tech analyst firm headquartered in Cambridge, MA. Study highlights follow.

Software sales are growing. In 2005 software spending will grow by only 3%, with systems management, storage software and security applications showing the largest increases. Spending is expected to pick up in 2006 and beyond as applications based on services-oriented architectures (SOA), composite applications and Web services become more mainstream.

IT growth will be solid. Spending on IT goods, services and staff is expected to grow 7% in 2005 and continue at a similar pace through 2008. This is slightly faster than the overall economic growth rate.

CIOs are more optimistic. For the first time in three quarters, a majority of CIOs describe the climate for their industry is at least in the strong category. Of the respondents, 71% expect an even better performance three business quarters from now, compared with only 5% who anticipate a decline.

IT budgets are rising. Of the responding CIOS, 39% are spending above their budgeted run rate on IT, up from 34% this past quarter.

Consulting sales are slowing. IT consulting and integration spending are expected to post a modest growth of 4% through 2008 as a result of slowing demand for large enterprise applications, Internet consulting and the absence of a new must-have application. Growth in 2005 is expected to be 3%.

Hardware spending is up sharply. Computer hardware sales are expected to average 9% a year until 2008, with growth expected to peak in 2005 at 14% and then level off. Near-term growth drivers include improved price and performance, the spread of Linux and other open-source software, and the growing use of blade servers.

Networking sales are strong but slowing. Network equipment will grow modestly at an average of 4% a year until 2008. Spending on new equipment by communications carriers and enterprises is expected to grow by 16% in 2004, but slow dramatically after that.