Business Spending Drives Tech Optimism For New Year

BOSTON (AP) -- The corporate spending that drives the technology sector is as strong as it has been since the end of the 1990s boom, giving the industry optimism as it heads into 2004.

"This is not a burst. This is a sustainable interest," said Bill Zadrozny, chief executive of Siemens Financial Services, which helps businesses lease and finance new technology investments. "There were false starts before, but this one looks for real."

In the third quarter, equipment and software expenditures jumped 17.6 percent, helping fuel the 8.2 percent increase in gross domestic product, according to the Commerce Department.

Most of the end-of-year forecasts focusing more specifically on technology spending expect a 4 percent to 6 percent increase in 2004, notably healthier than in previous years when corporate stinginess weighed down the entire economy.

But that hardly amounts to another boom, and the momentum is uncertain, experts caution. In fact, there appears to have been some slowdown during the fall, perhaps because newly confident information technology managers realized they had overspent budgets set last year when times were tougher."I don't think it's going to return to the boom days of five years ago anytime soon," said Tom Pohlmann, who follows technology spending at Forrester Research.

And the growth that comes won't necessarily be across the board. In year-end interviews, experts offered their view of the shape of tech spending in 2004.

-- Software: The buzzword for 2004, recycled from dot-com jargon, is "enterprise" software. Broadly speaking, companies are expected to shift away from software that targets cost cutting--the overriding priority of the past three years--and toward software that backs up genuine "enterprise" or "strategic" moves.

Basically, that means companies will buy software to support new initiatives involving supply chains, security, data storage, and the way they interact with customers over the Internet.

Forrester expects overall information technology spending to grow 4 percent, but such "strategic" spending to rise 9 percent.The growth will be concentrated in such industries as retail and insurance, Forrester found, where technology goes to the heart of how businesses interact with customers.

But the software industry still faces some big problems, notably an absence of "killer applications." Nobody doubts products are getting better, but it's been several years since the industry has come up with anything so innovative that customers simply have to buy it.

-- Hardware: Tech budgets and hiring are inching up, and all that equipment purchased during the last boom is aging. In short, all the pieces are in place for a strong year.

Forrester checked with 818 North American companies with revenues exceeding $500 million and found that 40 percent of them considered computer replacements and Windows upgrades to be priorities for next year.

-- Wireless: Look for more companies to embed tiny computers and radio tags in their trucks, crates and factories to provide more accurate information and help them run more efficiently. Many companies discovered the cost-cutting virtues of tight inventory tracking during the downturn, and many companies are starting to look more seriously at wireless as the way to get there.Many companies don't have a choice. Wal-Mart is forcing its suppliers to invest in radio-frequency identification tags to help the retail giant track its inventory.

-- Telecom: Look for more businesses and consumers to connect their telephones to an Internet-based service using the technology known as voice over Internet Protocol, or VoIP. Earlier this month, three major communications companies--Time Warner Inc.'s cable TV unit, Qwest Communications International Inc. and AT&T Corp.--announced plans to sell Internet phone services to consumers.

"It's not a tidal wave, but people are saying, 'OK, we've hit the reliability level,'" with VoIP connections and quality, said Zadrozny, of Siemens.

The experts also pointed to some areas where growth might not be forthcoming despite expectations.

One is Linux and other open-source software. Forrester found relatively few companies considering such technologies crucial or a priority next year.Another is outsourcing. Companies that embraced sending their technology elsewhere--including overseas--are starting to realize it may be more expensive than they thought, analysts say.

Finally, information technology spending on the real human beings who keeps systems running likely won't budge much. With the labor pool plentiful and companies still to cautious to start big hiring sprees, salaries aren't expected to grow much if at all.