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Vendors will regain upper hand

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European IT budgets will show marginal growth this year, with discretionary spending almost non-existent, and only sluggish growth next year.

That's the main findings of Gartner's 2003 IT Budget Survey in Europe, which quizzed 420 respondents working in various sectors across Europe on their spending plans for this year and 2004.

IT spending is in a "depressed but stable" condition at present. The continued downward pressure on budgets, combined with the maintenance requirements of IT investments made in the late nineties, has almost killed off dicretionary spending.

Gartner expects a recovery in spending next year but not before a major industry shake-up, driven by vendor consolidation, and a shift in market dynamics.

"Key vendor, industry and technology dynamics indicate a strong possibility that 2004 will see a slow recovery, as demand begins to exceed supply again," said Gartner chairman Michael Fleisher. "The current supply-side over-capacity in the marketplace will begin to wane throughout 2003, along with end-users' advantageous bargaining position. This will be driven by further vendor consolidation, reaching a peak late in 2003. Consequently, pricing power will return to the vendors in the majority of technology sectors."

On the demand side, Gartner predicts good news for the beleagured PC sector. It predicts end users will be unable to defer replacing ageing hardware for much longer and 2004 will see many firms upgrading their legacy hardware. Maintenance costs will soon be higher than replacement costs and this, together with price/performance improvements, will drive a significant replacement cycle in 2004.

Built-in wireless functionality and hardware base security will spur PC upgrade cycles, Gartner believes. The analysts predict wireless LANs will become a mainstream technology next year while "Linux and Windows will gain true enterprise credibility" and the momentum behind Web services will grow.

The survey, along with Gartner's wider predictions for the market, were unveiled at the Gartner Symposium/ITxpo conference in Florence, Italy this week. Gartner notes that its predictions for economic recovery on conditional on wider geo-political factors, such as the effect an increasingly-likely war in the Gulf might have on the wider economy. ®

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