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IT SpendingFebruary 2004

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Table of Contents 3

Methodology 7

The eMarketer Difference 8

The Benefits of eMarketer’s Aggregation Approach 9

“Benchmarking” and Projections 9

I WW IT Spending 11

A. Worldwide IT Spending Forecasts 12

B. Worldwide IT Spending Growth Rates 17

Telecommunications Spending 21

IT Hardware Spending 23

IT Software Spending 24

IT Services Spending 26

II North America 29

A. IT Spending Forecasts 30

B. IT Spending Growth Estimates 35

III Europe 41



IV The Asia-Pacific Region 53




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V Latin America 63



VI IT Spending by Industry 69

VII IT Budgeting and Spending Surveys 81

A. IT Spending in 2003 82

B. IT Spending in 2004 92

C. IT Spending Priorities 97

Telecommunications and networking equipment 101

IT Hardware 104

IT Software 108

IT Services 112

Index of Charts 115


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Reuse of information in this document, without prior authorization,is prohibited. If you would like to license this report for yourorganization, please contact David Iankelevich [email protected], or 212.763.6037.

Written by Steve Butler

Also contributing to this report:Yael Marmon, director of researchKrikor Daglian, researcherTracy Tang, researcherDavid Berkowitz, senior editorRebecca Turner, senior editorKwanza Osajyefo Johnson, data entry associateDana Hill, production artist

IT Spending

February 2004

Welcome to eMarketer

Dear Reader:

After almost three years of slow economic growth and reduced IT spending, it appears that as of thesecond half of 2003, a turnaround has finally begun.

In our third annual IT Spending report, eMarketer has pulled together comparative estimates fromleading industry analysts and research firms to provide readers with a comprehensive look at howtechnology spending will unfold in 2004. These forecasts cover regional, national, and industry-specific markets, as well as IT spending estimates for key segments of the overall technology market,including telecommunications, hardware, software and IT services.

eMarketer has also aggregated data from numerous IT spending surveys in order to gain betterinsight into the spending priorities of IT executives for the coming year. These results examine ITspending trends from the last half of 2003 into early 2004, and they also break down CIOs’ spendingplans for telecom equipment, hardware, software and IT services.

If you have any questions or comments concerning eMarketer or any of the material in this report,please call, fax or e-mail us.

Steve ButlerSenior Analyst

Steve ButlerSenior Analyst, [email protected]

eMarketer, inc.75 Broad StreetNew York, NY 10004T: 212.763.6010F: 212.763.6020

Methodology 7

The eMarketer Difference 8



I WW IT Spending 11

II North America 29

III Europe 41


V Latin America 63



Index of Charts 115


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Methodology

WW IT Spending

North America

Europe

The Asia-Pacific Region

Latin America

IT Spending by Industry

IT Budgeting and Spending Surveys

Index of Charts

eMarketer’s approach to market research is founded on a philosophy ofaggregating data from as many different sources as possible. Why? Becausethere is no such thing as a perfect research study and no single researchsource can have all the answers. Moreover, a careful evaluation andweighting of multiple sources will inevitably yield a more accurate picturethan any single source could possibly provide.

The eMarketer DifferenceeMarketer does not conduct primary research, it therefore has no testingtechnique to defend, no research bias and no client contracts to protect.

eMarketer prepares each market report using a four-step process ofaggregating, filtering, organizing and analyzing data from leading researchsources worldwide.

Using the Internet and accessing a library of electronically-filed researchreports and studies, the eMarketer research team first aggregates e-businessdata from hundreds of global research and consultancy firms. Thiscomparative source information is then filtered and organized into tables,charts and graphs. Finally, eMarketer analysts provide concise andinsightful analysis of the facts and figures along with their own estimatesand projections. As a result, each set of findings reflects the collectedwisdom of numerous research firms and industry analysts.

“I think eMarketer reports are extremely useful andset the highest standards for high quality,objective compilation of often wildly disparatesources of data. I rely on eMarketer’s researchreports as a solid and trusted source.”— Professor Donna L. Hoffman, Co-Director, eLab, Vanderbilt University

www.eMarketer.com©2001 eMarketer, Inc.

Analyze

Aggregate

Filter

Organize


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Index of Charts

The Benefits of eMarketer’s AggregationApproachObjective: information is more objective than that provided by any singleresearch sourceComprehensive: gathered from the world’s leading research firms,consultancies and news organizationsAuthoritative: quoted in leading news publications, academic studies andgovernment reportsAll in one place: easy to locate, evaluate and compareReadily accessible: so you can make quick, better-informed business decisionsAbove the hype: accurate projections that business people can use with confidenceTime saving: there’s no faster way to find Internet and e-business stats,online or offMoney saving: more information, for less, than any other source in the world

“Benchmarking” and ProjectionsUntil recently, anyone trying to determine which researcher was mostaccurate in predicting the future of any particular aspect of the Internet didnot have a definitive source with which to do this. For instance, over 10firms predicted e-commerce revenues for the fourth quarter 1998 onlineholiday shopping season, and yet no single source could be identified afterthe fact as having the “correct” number. In the Spring of 1999, however, theUS Commerce Department finally began measuring e-commerce B2Cactivity so business people and others could have a benchmark with whichthey could compare and evaluate projections.

eMarketer has adapted its methodology to recognize that certaingovernment and other respected, impartial sources are beginning toprovide reliable numbers that can be consistently tracked over time. Mostof these established sources, however, only measure past results; typically,they do not make predictions.


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Index of Charts

Today, eMarketer formulates its essential e-business numbers by firstidentifying the most established, reputable source for a given sector beingmeasured and then adopting that organization’s figures as benchmarks forthe historical/current period. For instance, eMarketer’s US Internet userfigures will be based on a combination of the most recent data from the USCensus Bureau and the International Telecommunication Union. Using thisdata as the benchmark for 2000 and 2001, eMarketer will make projectionsfor subsequent years based on the following factors:

■ a comparative analysis of user growth rates compiled from otherresearch firms

■ additional benchmark data from Internet rating firms, e.g.,Nielsen//NetRatings, comScore Media Metrix, which use panels tomeasure Internet user activity on a weekly and monthly basis

■ an analysis of broader economic, cultural and technological trends inthe US

Similarly, US e-commerce revenues are being “benchmarked” usinghistorical data from the US Department of Commerce, and broadbandhousehold and penetration rate forecasts are being built off baseline datafrom the Organization for Economic Cooperation and Development (OECD).

Through this benchmarking process, eMarketer will be holding itself –and its projections – accountable.

“When I need the latest trends and stats on e-business, I turn to eMarketer. eMarketer cutsthrough the hype and turns an overabundance of data into concise information that is sound and dependable.”— Mark Selleck, Business Unit Executive, DISU e-business Solutions, IBM

Methodology 7

I WW IT Spending 11

A. Worldwide IT Spending Forecasts 12

B. Worldwide IT Spending Growth Rates 17

II North America 29

III Europe 41


V Latin America 63



Index of Charts 115

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Index of Charts

A.Worldwide IT Spending ForecastsIn August 2003, the Aberdeen Group reaffirmed its December 2002 forecastthat worldwide IT spending would grow by 4.0% in 2003, totaling $1.26trillion by the year’s end. Looking ahead to 2004, the Aberdeen Group hasestimated that worldwide spending on IT hardware, software, and serviceswill reach $1.31 trillion, increasing by another 4.3% over 2003 spending.

Between 2003 and 2006, worldwide IT spending is expected to increaseby a compound annual growth rate of 4.5%, led by rising spending amongcountries in the Asia-Pacific region, as well as improving economicconditions in North America and Europe.

According to the December 2002 IDC Black Book, worldwide IT spending isestimated to reach $926.0 billion by the end of 2003, prior to growinganother 9.06% in 2004 to top $1.00 trillion.

Similar to the Aberdeen Group’s findings, IDC believes that IT spendinggrowth will be led by the Asia-Pacific and Middle East/Africa regions, whereoutlays for IT hardware, software and services are expected to grow by11.98% in 2004. IT spending in Central and Eastern Europe is also expectedto show continued strong growth of 11.55% during the coming year.

It is worthwhile to note that neither the Aberdeen Group nor IDCincludes the trillion-dollar telecommunications equipment and servicesmarket in their worldwide IT spending forecasts.

Looking ahead to 2007, IDC predicts that worldwide IT spending will reach$1.12 trillion in four years’ time, increasing by a compound annual growthrate of 5.4% between 2003 and 2007.

Worldwide IT Spending, 2003 & 2006 (in trillions)

2003 $1.26

2006 $1.44

Source: Aberdeen Group, December 2002

046006 ©2002 eMarketer, Inc. www.eMarketer.com

Worldwide IT Spending, 2001-2004 (in billions)

2001 $894.459

2002 $872.732

2003 $926.043

2004 $1,009.913

Source: International Data Corporation (IDC), December 2002



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When IT spending is broken down by category, IDC estimates that ITservices expenditures will total $419.1 billion in 2004, up from $381.6billion in 2003.

Packaged software is expected to see slightly better growth in 2004,however, increasing 10.2% this year, compared with IT services growth of 9.8%.

Among the key trends that will continue in 2004, IDC believes that thetechnology industry’s evolution toward standards-based commoditycomputing will be fully realized in the current year, as leading technologyvendors try to differentiate their product and service offerings in a marketthat has become increasingly standardized during the past several years.

In a March 2003 update to its November 2002 worldwide IT spendingforecast, Gartner Dataquest revised downward its IT spending estimates for2003 and 2004, predicting IT spending would total $2.31 trillion in 2003and $2.45 trillion in 2004.

Gartner includes telecommunications equipment and services spendingin its worldwide spending forecast, in addition to computer hardware,software and services spending.

“Given the rise of more critical and pragmaticattitudes toward IT among enterprise users, longer-term spending growth is now expected to besomewhat more subdued than previously forecast.”— Gartner Dataquest, March 2003

Worldwide IT Spending, by Category, 2001-2004 (inbillions)

2001 2002 2003 2004

Hardware $370.12 $335.11 $348.98 $375.40

Packaged software $178.19 $182.77 $195.41 $215.36

IT services $346.15 $354.86 $381.66 $419.16

Total IT $894.46 $872.73 $926.04 $1,009.91




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Methodology

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Index of Charts

Previously, Gartner Dataquest had predicted worldwide IT spending of$2.34 trillion and $2.49 trillion in 2003 and 2004, respectively.

In the latest revision to its worldwide IT spending forecast, GartnerDataquest slightly lowered its IT spending estimates for 2003 and 2004,forecasting in December 2003 that worldwide IT spending would total$2.30 trillion by the end of 2003, and $2.42 trillion in 2004.

Broken down by category, Gartner estimates that telecommunicationsequipment and services spending will total $1.36 trillion in 2004, while ITservices will increase to $606.1 billion in spending.

In characterizing the 2003 IT spending environment in the United States,Gartner Dataquest believes that federal government spending has been oneof the key drivers of growth during the past year, while state and localgovernments have had the opposite effect on aggregate IT spending due tobudgetary constraints.

Financial services firms are characterized as having been cautious withtheir IT spending during 2003, but they are expected to significantlyincrease their IT spending in 2004.

Worldwide IT Spending, 2002-2007 (in trillions)

2002 $2.196

2003 $2.313

2004 $2.455

2005 $2.605

2006 $2.758

2007 $2.880

Source: Gartner Dataquest, March 2003


Worldwide IT Spending, by Category, 2002-2006 (inbillions)

2002 2003 2004 2005 2006

Computer hardware $345.07 $348.77 $366.09 $380.78 $388.94

Software $75.77 $77.41 $82.84 $89.58 $96.68

IT services $535.97 $578.57 $606.10 $641.42 $682.46

Telecom $1,235.17 $1,297.50 $1,365.79 $1,429.34 $1,497.47

Total IT $2,191.98 $2,302.25 $2,420.81 $2,541.12 $2,665.55

Source: Gartner Dataquest, December 2003



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Index of Charts

According to IDC’s breakdown of worldwide IT spending by region, NorthAmerica will account for the largest share of global technologyexpenditures in 2004, at 43.1% of all spending. Western Europe will remainas the second largest regional market in the world, followed by the Asia-Pacific region, which will account for 30.0% and 20.1% of worldwide ITspending, respectively.

China and Europe are expected to be the two biggest drivers of new ITspending growth, according to IDC, with China spending more than $30billion on IT products and services in 2004. IT spending in Europe isexpected to see strength due to the expansion of the European Union,which IDC estimates will account for 11% of new IT spending in the Europe,Middle East and Africa (EMEA) region during 2004.

Comparative data from Gartner Dataquest, which includestelecommunications spending in its estimates, puts the combined spendingof Canada and the United States at 40.0% of worldwide IT spending.

Western Europe is estimated to account for a 24.9% share of worldwideIT spending, while the countries of Central and Eastern Europe make up3.7% of the global technology market.

Worldwide IT Spending, by Region, 2004 (in billionsand as a % of total spending)

North America $435.1 (43.1%)

Western Europe $302.7 (30.0%)

Asia-Pacific $203.0 (20.1%)

Latin America $30.6 (3.0%)

Middle East/Africa $19.0 (1.9%)

Central/Eastern Europe $19.4 (1.9%)




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Index of Charts

Gartner also singles out Japan within its worldwide forecast, estimatingthat IT spending there will total $254.3 billion, or 10.4% of global ITspending. The rest of the Asia-Pacific region is estimated to account foranother 11.5% of IT spending, at $281.2 billion.

Worldwide IT Spending, by Region, 2004 (in billionsand as a % of total spending)

United States

$919.3 (37.5%)

Western Europe

$610.5 (24.9%)

Asia-Pacific (excluding Japan)

$281.2 (11.5%)

Japan

$254.3 (10.4%)

Latin America

$144.6 (5.9%)

Middle East/Africa

$91.9 (3.7%)

Central/Eastern Europe

$91.6 (3.7%)

Canada

$61.0 (2.5%)




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Index of Charts

B.Worldwide IT Spending Growth RatesIn December 2002, IDC estimated that worldwide IT spending wouldincrease by 6.11% in 2003, prior to growing an additional 9.06% in 2004.

Broken down by category, IDC expected IT services to see the strongestgrowth in 2003, ahead of both packaged software and IT hardware.

In 2004, however, IDC predicted that software sales would see a strongrebound, increasing by 10.2% over 2003 spending.

By March 2003, IDC decided to lower its estimates for 2002 IT spending asfinal year-end data came in, showing that fourth quarter spending was notas strong as had been expected.

Rather than falling by 2.4% in 2002, IDC estimated that worldwide ITspending had actually declined by 4.1%.

Change in Annual IT Spending Worldwide, 2002-2004

2002-2.43%

2003 6.11%

2004 9.06%



Change in Annual IT Spending Worldwide, byCategory, 2002-2004

2002 2003 2004

Hardware -9.5% 4.1% 7.6%

Packaged software 2.6% 6.9% 10.2%

IT services 2.5% 7.6% 9.8%

Total IT -2.4% 6.1% 9.1%



Worldwide IT Spending Growth, 1999-2002

1999 10.8%

2000 10.4%

2001-0.5%

2002-4.1%

Source: International Data Corporation (IDC), March 2003



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As a result of this downward revision to its 2002 figures, and in the midstof the US-led war with Iraq, IDC lowered its 2003 IT spending projectionsfor most regions of the world, predicting that global IT spending wouldincrease by only 2.3% in 2003, down significantly from its earlier forecastof 6.11% growth.

Broken down by product category, IDC predicted that hardware sales wouldactually decline by 0.5% in 2003, while IT software and services wouldincrease by 4.5% and 3.7%, respectively.

According to IDC’s most recent forecast revision published in November2003, worldwide IT spending is expected to increase by 5% in 2004, toreach $916 billion by year’s end.

Reduced technology spending in Europe, Japan and Canada are expectedto continue to be a drag on worldwide IT spending as they were in 2003,although IDC does believe that the final numbers for last year will showpositive growth overall.

“Pent-up demand within IT departments,particularly for mission-critical infrastructure, hasreached unprecedented levels.”— Stephen Minton, IT Spending Analyst, IDC

Worldwide IT Spending for Select Regions, 2003 (as a% increase/decrese vs. prior year)

Worldwide 2.3%

Europe 2.0%

US 1.5%

Japan-1.4%

Source: International Data Corporation (IDC), April 2003


Worldwide IT Spending, by Category, 2003 (as a %increase/decrease vs. prior year)

Software 4.5%

Services 3.7%

Hardware -0.5%

Source: International Data Corporation (IDC), April 2003



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Looking ahead to 2004, IDC has indicated that its current forecast of 5%growth is based upon a conservative economic outlook, and could possiblybe revised upward to between 6% and 8% if economic conditions continueto improve in the United States and emerging markets. IT spending growthin Latin America, for example, is expected to increase by 7% in 2004.

By comparison, the Aberdeen Group’s long term IT spending forecastpredicts that the Asia-Pacific region will lead global IT spending growthbetween 2003 and 2006, with technology spending in the region growingby a compound annual rate of 6.5%.

IT spending in North America is expected to increase by a relativelysteady 4.9% during the four-year forecast period, while Europe should seeweaker IT spending growth of 2.6%, according to the Aberdeen Group.

Similar to the above findings, the European Information TechnologyObservatory (EITO) cites continued spending growth in the Asia-Pacificregion and China in particular as one of the main foundations of itsforecast for 5.7% information and communications technology (ICT)spending growth in 2004.

The EITO believes that countries from Central and Eastern Europe, as wellas Latin America will also be significant contributors to ICT spendinggrowth during the coming year.

Comparative data from Gartner Dataquest confirms that just like IDC,Gartner reduced its IT spending forecast during 2003 after initiallypredicting IT spending growth of 5.3% in March 2003.

Worldwide IT Spending CAGR, by Region, 2003-2006

Asia Pacific Rim 6.5%

North America 4.9%

Europe 2.6%



Estimated Growth in Worldwide Information andCommunication Technology (ICT) Spending, 2001-2004

2001 2.8%

2002 1.2%

2003 4.5%

2004 5.7%

Source: European Information Technology Observatory (EITO), February2003



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Gartner had estimated that both telecommunications and IT servicesspending would lead growth during 2003, with each IT category seeingrevenues increase by 6.2% during the course of the year. Similar to IDC’sApril 2003 forecast, Gartner predicted that computer hardware sales wouldremain relatively flat.

However, as of December 2003, Gartner has reduced its 2004 growthforecasts across all categories of IT spending, with the exception ofcomputer hardware.

Worldwide IT spending is now estimated to have increased by 5.0% in2003, and is expected to grow by 5.1% in 2004 and 5.0% in 2005.

Telecom equipment and services spending is projected to grow by anarrower 5.6% in 2004, while software spending is forecast to increase by7.0% this year.

Worldwide IT Spending Growth, 2002-2007

2002 0.9%

2003 5.3%

2004 6.1%

2005 6.1%

2006 5.9%

2007 4.4%



Change in Annual IT Spending Worldwide, 2003-20042002 2003 2004 2005 2006 2007

Computer hardware -3.3% 0.6% 4.6% 2.9% 2.8% 0.4%

Software -0.7% 3.5% 7.7% 8.2% 8.5% 7.3%

IT services 2.8% 6.2% 7.1% 7.8% 7.9% 6.8%

Telecom 1.3% 6.2% 6.0% 6.1% 5.5% 4.0%



Worldwide IT Spending Growth, by Category,2003-2006

2003 2004 2005 2006

Computer hardware 1.1% 5.0% 4.0% 2.1%

Software 2.2% 7.0% 8.1% 7.9%

IT services 7.9% 4.8% 5.8% 6.4%

Telecom 5.0% 5.3% 4.7% 4.8%

Total IT 5.0% 5.1% 5.0% 4.9%




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Index of Charts

Telecommunications SpendingAccording to Gartner Dataquest’s March 2003 IT spending forecast,worldwide telecommunications equipment and services spending wasprojected to grow by 6.2% in 2003 to reach $1.32 trillion by year’s end.

Between 2002 and 2007, telecom spending was estimated to increase bya compound annual growth rate of 5.5%, to reach $1.633 trillion in sixyears’ time.

When telecommunications equipment and services sales are broken outseparately, Gartner Dataquest estimates that telecom equipment willaccount for $286.7 billion, or 20.4% of total telecom sales during 2004.

Telecom equipment sales are expected to see growth of only 3.9% in2004, however, while telecom services sales are forecast to increase by6.5% in 2004, after increasing 7.3% in 2003.

Gartner predicts that telecom equipment sales will return to strongergrowth in 2005, increasing by 6.6% to $305.7 billion in sales.

Worldwide Telecommunications Spending, 2002-2007(in billions)

2002 $1,247.8

2003 $1,324.7

2004 $1,403.5

2005 $1,488.5

2006 $1,570.4

2007 $1,633.6



Worldwide Telecommunications Spending, byCategory, 2002-2007 (in billions)

Telecomequipment

Telecom ser-vices

Total

2002

$270.5

$977.3

$1,247.8

2003

$275.9

$1,048.7

$1,324.6

2004

$286.7

$1,116.8

$1,403.5

2005

$305.7

$1,182.8

$1,488.5

2006

$323.7

$1,246.8

$1,570.5

2007

$338.3

$1,295.3

$1,633.6




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As mentioned above, with Gartner’s downward revision to its IT spendingforecast in December 2003, telecom spending is now forecast to increase by5.3% in 2004.

By comparison, IDC estimates that worldwide telecommunications servicesspending will grow 4% this year, topping $1 trillion by the end of 2004.Within this category, data services is expected to lead the way withspending growth of 16% in 2004.

“As the telecom winter gives way to a telecomspring, the rebound will average nearly 5% growthbetween now and 2007.”— Ludovica Bruno, Telecom Analyst, IDC

Even telecom equipment spending is expected to see a return to positivegrowth in 2004, increasing by 5% this year, ahead of an estimated 6%increase in 2005.

For more information on telecommunications spending, please seeeMarketer’s March 2004 Telecom Spending spotlight report. To sign upfor report notifications, go tohttp://www.emarketer.com/products/reports/notify.php.

Worldwide Telecommunications Spending, 2002-2006(in billions)

2002 $1,235.2

2003 $1,297.5

2004 $1,365.8

2005 $1,429.3

2006 $1,497.5



Worldwide Telecommunications Equipment SpendingGrowth, 2004 & 2005

2004 5%

2005 6%

Source: International Data Corporation (IDC), November 2003


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IT Hardware SpendingIn December 2002, IDC estimated that worldwide IT hardware spendingwould increase by 4.1% in 2003, to reach $348.9 billion by year’s end.Spending on IT hardware was forecast to increase by another 7.5% in 2004,growing to $375.4 billion.

However, as part of the April 2003 downward revision to its global ITspending forecast, IDC now believes that worldwide hardware sales willdecline by 0.5% in 2003.

In March 2003, Gartner Dataquest was predicting growth in computerhardware sales of 0.6% for 2003, to $320.7 billion, and 4.6% spendinggrowth in 2004, to worldwide sales of $335.5 billion.

Worldwide Computer Hardware Spending, 2002-2007(in billions)

2002 $318.7

2003 $320.7

2004 $335.5

2005 $345.3

2006 $354.8

2007 $356.2



Worldwide IT Hardware Spending, 2001-2004 (inbillions)

2001 $370.12

2002 $335.11

2003 $348.98

2004 $375.40




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After adjusting its hardware sales numbers for 2002, Gartner estimated inDecember 2003 that computer hardware spending will increase by a narrow1.1% in 2003, to $348.8 billion.

For 2004, Gartner now projects computer hardware spending will growby 4.9%, up slightly from its earlier forecast of 4.6% growth.

IT Software SpendingAccording to IDC’s December 2002 forecast for packaged software spending,worldwide sales were expected to increase by 6.9% in 2003 to $195.4billion, prior to growing another 10.2% in 2004 to reach $215.3 billion.

After revising its forecasts downward in April 2003, IDC predicted thatsoftware sales would still lead IT spending growth across all technologycategories in 2003, albeit with a narrower increase of just 4.5% for the year.

Worldwide Computer Hardware Spending, 2002-2006(in billions)

2002 $345.1

2003 $348.8

2004 $366.1

2005 $380.8

2006 $388.9



Worldwide Packaged Software Spending, 2001-2004(in billions)

2001 $178.19

2002 $182.77

2003 $195.41

2004 $215.36




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By comparison, Gartner Dataquest’s March 2003 estimate for IT softwaresales predicted growth of 3.5% in 2003, and 7.7% in 2004.

Worldwide IT software spending was forecast to increase from $76.1billion in 2003 to $82.0 billion in 2004.

Following an upward revision to its entire IT software spending model in December 2003, Gartner Dataquest now estimates that worldwidesoftware spending totaled $77.4 billion in 2003, having grown 2.1% over2002 spending.

For 2004, Gartner predicts that software spending will increase byanother 7.0%, to reach $82.8 billion by year’s end.

For more information on software spending, please see eMarketer’sJuly 2004 E-Business Software spotlight report. Sign up for reportnotifications athttp://www.emarketer.com/products/reports/notify.php.

Worldwide IT Software Spending, 2002-2007 (inbillions)

2002 $73.5

2003 $76.1

2004 $82.0

2005 $88.7

2006 $96.3

2007 $103.3



Worldwide IT Software Spending, 2002-2006 (inbillions)

2002 $75.8

2003 $77.4

2004 $82.8

2005 $89.6

2006 $96.7





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IT Services SpendingIn December 2002, IDC predicted that worldwide IT services spendingwould increase by 7.5% in 2003, to reach $381.6 billion by year’s end, priorto growing another 9.8% in 2004.

With its revised spending forecast that was published in April 2003, IDC lowered its growth forecast for 2003, from 7.5% to 3.7%.

Gartner Dataquest’s March 2003 forecast projected IT services spendinggrowth of 6.2% in 2003 and 7.1% growth in 2004.

Worldwide IT Services Spending, 2001-2004 (inbillions)

2001 $346.15

2002 $354.86

2003 $381.66

2004 $419.16




2002 $556.9

2003 $591.5

2004 $633.6

2005 $682.8

2006 $736.7

2007 $787.1




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Index of Charts

However, by December 2003, Gartner had lowered its baseline estimates forIT services spending by a little more than $20 billion for 2002 and $13billion for 2003.

Based upon these revised IT services spending totals, Gartner changed its projections for IT services spending to growth of 7.9% in 2003 and 4.8%in 2004.

According to Gartner’s analysis, IT consulting and development/integrationservices will see slower growth over the next five years when comparedwith IT management and business process outsourcing, which are forecastto lead IT services growth.

Although offshore outsourcing of IT services has been occurring formore than five years, the practice of turning to third party IT serviceproviders with overseas operations has increased significantly during therecent economic downturn, as a growing number of US corporations havesought to reduce costs.

In light of the momentum behind this trend, IDC predicts that offshore ITservices spending by US companies will more than triple during the nextfour years, from $16.0 billion in 2004 to $46 billion by 2007.


2002 $536.0

2003 $578.6

2004 $606.1

2005 $641.4

2006 $682.5



Offshore IT Services Spending in the US, 2004 & 2007(in billions)

2004 $16

2007 $46



IIMethodology 7

I WW IT Spending 11

II North America 29



III Europe 41


V Latin America 63



Index of Charts 115


29

IT Spending


30

IT Spending

Methodology

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North America

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Index of Charts

A. IT Spending ForecastsWith North American IT spending estimated to have accounted for 39.6%of worldwide IT spending in 2003, the Aberdeen Group predicts that ITspending by the United States and Canada will increase by 5.0% in 2004, toreach $525 billion by the end of this year.

IT Spending in North America, 1999-2006 (in billions)

1999 $433

2000 $477

2001 $475

2002 $482

2003 $500

2004 $525

2005 $553

2006 $583




31

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Index of Charts

Broken down by country, the Aberdeen Group estimates that IT spending inCanada will total $34.3 billion in 2004, while US IT spending will increase4.9% from $468.0 billion in 2003 to $491.0 billion in 2004.

IT Spending in North America, by Country, 2000-2006(in billions)

2000

$448.0

$29.7

2001

$446.0

$29.6

2002

$451.0

$30.7

2003

$468.0

$32.6

2004

$491.0

$34.3

2005

$516.0

$36.2

2006

$545.0

$38.1

US Canada




32

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Index of Charts

By comparison, IDC estimated in December 2002 that North American ITspending on hardware, software, and services would total $407.2 billion atthe end of 2003, prior to growing an additional 6.8% in 2004 to reach$435.1 billion.

On its own, US IT and telecommunications spending is forecast by GartnerDataquest to come in at $919.3 billion in 2004, an increase of 6.4% over2003 spending of $863.9 billion.

IT Spending in North America, 2001-2004 (in billions)

2001 $410.31

2002 $390.15

2003 $407.28

2004 $435.10



IT Spending in the United States, 2002-2007 (inbillions)

2002 $825.3

2003 $863.9

2004 $919.3

2005 $971.6

2006 $1,030.1

2007 $1,076.7




33

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Methodology

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Index of Charts

In another comparative estimate that includes spending on IT employees’salaries and benefits, Forrester Research estimates that technologyspending in the United States will total $752 billion in 2004, an increase of4.4% over 2003 IT spending of $720 billion.

Forrester predicts that US IT spending will grow by another 5.7% in2005, to reach $795 billion.

Turning to estimates for technology spending in Canada, Gartner Dataquestestimates that combined telecommunications and IT spending in Canadawill increase by 9.5% from $55.7 billion in 2003 to $61.0 billion in 2004.

Between 2002 and 2007, Gartner expects that IT spending in Canada willgrow by a compound annual rate of 7.8%.

IT Spending in the US, by Segment, 2001-2005 (inbillions)

2001 2002 2003 2004 2005

Computers and peripheral equipment $86 $81 $77 $84 $96

Communications equipment $100 $95 $88 $92 $104

Software $180 $183 $193 $204 $210

IT consulting and SI services $105 $95 $92 $94 $98

IT outsourcing $60 $67 $70 $74 $80

IT salary and benefits $201 $202 $200 $204 $208

Total $733 $722 $720 $752 $795

Source: Forrester Research, December 2003


IT Spending in Canada, 2002-2007 (in billions)

2002 $51.8

2003 $55.7

2004 $61.0

2005 $65.7

2006 $70.9

2007 $75.2




34

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Latin America



Index of Charts

By comparison, IDC estimates that IT spending in Canada will grow from$34.8 billion in 2003 to $38.8 billion in 2007. As mentioned above, it isworthwhile to note that IDC does not include telecommunications spendingin its top-level IT spending forecast.

Breaking down Canadian IT spending by category, IDC estimates that ITservices accounted for 46.4%, or $16.1 billion of total technology spendingin 2003, followed by IT hardware and software at $12.5 billion and $6.0billion, respectively.

IT Spending in Canada, by Category, 2003 & 2007 (inbillions)

2003 2007

IT hardware $12.56 $12.93

IT software $6.07 $6.80

IT services $16.16 $19.07

Total $34.79 $38.80

Source: International Data Corporation (IDC), October 2003



35

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Index of Charts

B. IT Spending Growth EstimatesAccording to IDC’s December 2002 IT spending forecast for North America,IT spending was expected to grow by 4.39% in 2003, prior to increasinganother 6.83% in 2004.

However, due to continued economic uncertainty during the early part of2003, in April 2003, IDC lowered its US IT spending forecast, predictingslower growth of 1.5% for the entire year.

In July of 2003, IDC lowered its 2003 US IT spending forecast once again,after spending surveys indicated that IT spending had been sluggish duringthe first half of the year.

As of the July 2003 revision, IDC predicted that US IT spending wouldactually contract by 0.1%, and then see slower growth of just 3.8% in 2004.

Change in Annual IT Spending in North America,2002-2004

2002-4.92%

2003 4.39%

2004 6.83%



US IT Spending Growth, 2001-2006

-6.2%

-5.7%

-0.1%

3.8% 5.3% 5.5%

-2

0

-6

-4

4

2

6

Source: International Data Corporation (IDC), July 2003


200620052004200320022001


36

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Index of Charts

A sense of optimism has returned to IDC’s outlook in November 2003,however, following an October survey of 557 IT managers. Among thestudy’s key findings, IDC discovered that there was a significant amount ofpent up demand for PCs and servers in particular, which the research firmbelieves may add momentum to an upgrade cycle in 2004.

Based upon the results of the October survey, IDC estimates that US ITspending will grow by 4% in 2004, although the research firm is careful tocaution that should economic growth suddenly slow down, US IT spendingcould grow by just 1% during the coming year. On the other hand, IDC alsobelieves that if the US economy performs better than expected, IT spendingwill come in at the high end of its range, at 8% during 2004.

By comparison, Gartner Dataquest was more optimistic about US ITspending in March 2003, forecasting 4.7% growth for 2003 and 6.4%growth in 2004.

IT Spending Growth in the US, 2002-2007

2002 0.9%

2003 4.7%

2004 6.4%

2005 5.7%

2006 6.0%

2007 4.5%




37

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A more recent growth estimate by Forrester Research is closer to IDC’sforecast, however, predicting that US IT spending will come in at zerogrowth for 2003, prior to rebounding to 4.0% growth in 2004.

Forrester believes that only software and IT outsourcing saw spendinggrowth in 2003, while communications equipment spending was hithardest, falling by 8%.

Looking ahead to 2004, Forrester believes that spending on computersand related equipment will lead IT spending growth across all categories,which will be followed by 6% growth in spending on IT outsourcing.

Between 2002 and 2008, Forrester Research estimates that IT software willsee the best growth of all IT spending categories, increasing by a compoundannual growth rate of 9%.

Computers and peripherals, followed by IT outsourcing are forecast toincrease by CAGRs of 8% and 7%, respectively, while overall US ITspending is expected to grow by 5% during this time.

IT Spending in the US, by Segment, 2001-2005 (as a %increase/decrease vs. prior year)

2001 2002 2003 2004 2005

Computers and peripheral equipment -4% -6% -4% 9% 13%

Communications equipment 3% -5% -8% 5% 13%

Software 1% 1% 6% 5% 3%

IT consulting and SI services -5% -9% -3% 2% 4%

IT outsourcing 28% 11% 4% 6% 8%

IT salary and benefits 3% 0% -1% 2% 2%

Total 2% -1% 0% 4% 6%

Source: Forrester Research, December 2003


IT Spending Growth in the US, by Segment, 2002-2008(compound annual growth rates)

Software 9%

Computers and peripheral equipment 8%

IT outsourcing 7%

IT salary and benefits 3%

IT services 2%

Communications equipment 1%

Total IT spending 5%

Source: Giga Information Group, December 2003



38

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Compared with forecast data from IDC, Gartner Dataquest is much moreoptimistic about IT spending in Canada, predicting that technologyspending there will increase by 7.6% in 2003 and another 9.5% in 2004.

By comparison, IDC predicts that IT spending in Canada will grow by anarrower 1.9% in 2004, following a tough 2003 when technology spendingcontracted by 0.2%.

IT Spending Growth in Canada, 2002-2007

2002 2.5%

2003 7.6%

2004 9.5%

2005 7.7%

2006 7.9%

2007 6.2%



IT Spending Growth in Canada, 2001-2006

2001

0.4%

2002

0.1%

2003

-0.2%

2004

1.9%

2005

2.5%

2006

3.3%

1

0

2

3




39

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Index of Charts

When IT spending is broken down by technology category, IDC predicts thatIT services spending will see the greatest increase over the next three years,growing by a compound annual rate of 3.6% between 2002 and 2007.

IT Spending Growth in Canada, by Category, 2002-2007(compound annual growth rate)

IT hardware 0.2%

IT software 2.5%

IT services 3.6%

Source: International Data Corporation (IDC), October 2003


IIIMethodology 7

I WW IT Spending 11

II North America 29

III Europe 41




V Latin America 63



Index of Charts 115


41

IT Spending


42

IT Spending

Methodology

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North America

Europe


Latin America



Index of Charts

A. IT Spending ForecastsAccording to the Aberdeen Group’s December 2002 IT spending forecast,technology expenditures in Europe are projected to grow by just 2.8% in2004, increasing from $387 billion in 2003 to $396 billion by the end of 2004.

Although Europe accounted for 30.6% of worldwide IT spending in 2003,the Aberdeen Group estimates that its share of global IT spending will fallto 28.7% by 2006, as spending in the Asia-Pacific region grows at a fasterpace over the next three years.

Both IDC and Gartner Dataquest have developed separate IT spendingforecasts for Western and Eastern Europe, on account of the significantdifferences in IT spending patterns and growth trends between both regions.

According to IDC’s December 2002 forecast, IT spending in WesternEurope was initially expected to see growth of 9.8% in 2004, increasingfrom $275.5 billion in 2003 to $302.7 billion during 2004.

However, in April 2003, IDC was required to revise its IT spendingforecast downward, predicting considerably slower growth of just 2%through the end of the year.

IT Spending in Europe, 1999-2006 (in billions)

1999 $354

2000 $376

2001 $377

2002 $375

2003 $387

2004 $396

2005 $405

2006 $415



IT Spending in Western Europe, 2001-2004 (in billions)

2001 $263.01

2002 $260.70

2003 $275.52

2004 $302.74




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By comparison, Gartner Dataquest’s March 2003 IT spending forecastpredicts growth of 4.1% in Western Europe during 2004, as IT andtelecommunications spending rises to $610.5 billion.

In September 2003, Gartner made some fundamental changes to its ITspending forecast for Western Europe, estimating that IT spending totaled$599.8 billion in 2002 and $614.1 billion in 2003.

Despite these upward revisions to its baseline model, as a result ofcontinued slow economic growth, Gartner scaled back its estimates for anygrowth in technology spending, predicting that IT spending in WesternEurope would grow by a narrower 2.7% in 2004, up from $614.1 billion in2003 to $631.0 billion for the current year.

Another more recent IT spending study by AMR Research has found thatbecause European firms will continue to be focused on fine-tuning theirprevious technology investments, IT budgets in Western Europe will growby an average of just 1% in 2004.

The United Kingdom, Germany, and France are the largest IT markets inWestern Europe, according to IDC, with these three countries accountingfor $169.4 billion, or 61.5% of regional IT spending during 2003.

At the bottom of the list, Portugal, Ireland and Greece are the smallesttechnology markets in Western Europe, spending a combined $6.15 billionin 2003.

IT Spending Western Europe, 2002-2007 (in billions)

2002 $562.9

2003 $586.1

2004 $610.5

2005 $640.3

2006 $669.3

2007 $693.7




44

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In 2004, Spain and Portugal are expected to be the fastest growing ITmarkets in Western Europe, with IT spending increasing by 14.7% and14.4% in each country, respectively. Of the five largest markets, Italy isforecast to see the best IT spending growth during the coming year, withgrowth of 11.5%.

When technology spending is broken down by category, IT services is thesingle largest market in Western Europe, at $130.7 billion in 2004.Hardware ranks second, according to IDC, with sales expected to total$106.7 billion during the coming year, while packaged software sales inWestern Europe are forecast to come in at $65.2 billion.

IT Spending in Western Europe, by Category,2001-2004 (in billions)

2001 2002 2003 2004

Hardware $100.34 $93.08 $97.41 $106.75


Services $109.51 $113.08 $120.13 $130.77

Total $263.01 $260.70 $275.52 $302.74



IT Spending in Western Europe, by Country, 2001-2004(in billions)

2001 2002 2003 2004

UK $57.60 $58.07 $60.78 $66.61

Germany $58.50 $56.48 $59.37 $64.62

France $46.21 $46.42 $49.28 $53.69

Italy $22.21 $21.94 $23.36 $26.05

Netherlands $14.45 $14.47 $15.09 $16.55

Spain $10.47 $10.62 $11.65 $13.37

Switzerland $9.99 $9.87 $10.53 $11.55

Sweden $9.72 $9.85 $10.33 $11.48

Belgium $7.69 $7.42 $7.74 $8.51

Denmark $5.71 $5.69 $6.13 $6.75

Austria $5.89 $5.69 $6.08 $6.62

Norway $4.51 $4.25 $4.53 $4.99

Finland $4.06 $4.19 $4.49 $5.00

Portugal $2.26 $2.17 $2.37 $2.71

Ireland $2.07 $2.03 $2.12 $2.38

Greece $1.65 $1.56 $1.66 $1.86

Western Europe $263.00 $260.70 $275.52 $302.74




45

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Comparative data from Gartner Dataqest estimates that IT servicesspending will total $172.8 billion in 2004, while spending on IT hardwarewill grow by 2.0% in Western Europe to reach $90.7 billion.

Software spending is forecast to see growth of 6.8% in 2004, as itincreases from $25.5 billion in 2003 to $27.3 billion this year.

Although the Central and Eastern European market for technology isconsiderably smaller than that of Western Europe, IT spending is growingmuch faster in this region, as countries continue with their efforts to catchup to their western counterparts.

“The region of Central and Eastern Europe is copingbetter with the ongoing global IT downturn thanWestern Europe or other emerging economies inAsia and Latin America.”— Steven Frantzen, Managing Director, IDC CEMA

In addition to infrastructure development, IDC notes that liberalization inthe telecommunications sector, along with the continued privatization ofseveral key industries, and rising levels of foreign direct investment are allcontributing to the relatively strong IT spending growth in the region.

IDC estimates that Central and Eastern European IT spending will increaseby 11.5% in 2004 to reach $19.4 billion, up from $17.3 billion in 2003.

IT Spending in Western Europe, by TechnologySegment, 2002-2005 (in billions)

2001 2002 2003 2004

Hardware $88,057 $87,523 $88,918 $90,709

Software $24,261 $24,409 $25,578 $27,329

IT services $158,316 $160,348 $165,442 $172,843

Telecom $308,660 $327,620 $334,219 $340,121

Total $579,295 $599,899 $614,158 $631,002

Note: numbers may not add up to total due to roundingSource: Gartner Dataquest, September 2003


IT Spending in Central and Eastern Europe, 2001-2004(in billions)

2001 $14.09

2002 $15.59

2003 $17.39

2004 $19.40




46

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Comparative data from Gartner Dataquest, which includestelecommunications spending in its forecast, predicts that countries inCentral and Eastern Europe will spend $91.6 billion on IT in 2004, anincrease of 7.9% over 2003.

IT Spending Central and Eastern Europe, 2002-2007 (inbillions)

2002 $77.2

2003 $84.9

2004 $91.6

2005 $99.1

2006 $105.8

2007 $111.5




47

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After making a slight upward revision to its forecast model in July 2003,IDC estimates that the three largest IT markets in Central and EasternEurope - Russia, Poland, and the Czech Republic - spent a combined $10.0billion on technology in 2002, or 63.1% of the region’s $15.8 billion intotal spending.

Hungary is the region’s fourth largest market, accounting for $1.5billion, or 9.8% of IT spending in 2002.

IT Spending in Central and Eastern Europe, byCountry, 2002 (in millions and as a % of totalspending)

Bulgaria

$229.01(1.4%)

Croatia

$461.70(2.9%)

Czech Republic

$2,191.01(13.8%)

Hungary

$1,555.66(9.8%)

Baltic States

$522.44(3.3%)

Poland

$3,086.50(19.5%)

Romania

$504.18(3.2%)

Russia

$4,811.63(30.3%)

Slovakia

$586.37(3.7%)

Slovenia

$414.07(2.6%)

Ukraine

$656.37(4.1%)

Central Asia

$282.65(1.8%)

Other CEE

$558.90(3.5%)

Source: International Data Corporation (IDC), May 2003



48

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Index of Charts

According to IDC’s July 2003 IT spending estimates, hardware is the largestcategory of IT spending in Central and Eastern Europe at $9.91 billion in2003, while software and services spending totaled $3.07 billion and $4.77billion, respectively.

Thanks to the continued growth of free market economies in the region,IDC notes that small and medium size businesses are the leading buyers ofPCs and peripherals, along with networking equipment and packagedsoftware. IDC has also found that as the development of their ITinfrastructure has progressed, many companies are beginning to switchfrom acquiring IT hardware, to spending more money on packagedsoftware and IT services.

Not surprisingly, the largest portion of IT services spending in Central andEastern Europe is for implementation services, as businesses andgovernments in the region continue to build-out their basic infrastructure.

IDC estimates that support services accounted for another 25.6% of ITservices spending in 2002, followed by consulting services at 12.9% of all expenditures.

IT Spending in Central and Eastern Europe, bySegment, 2000-2003 (in billions)

Hardware

Software

Services

Total

2000

$7.18

$1.92

$2.98

$12.08

2001

$8.45

$2.24

$3.51

$14.21

2002

$9.10

$2.65

$4.11

$15.86

2003

$9.91

$3.07

$4.77

$17.75



IT Services Spending in Central and Eastern Europe,by Segment, 2002 (in millions and as a % of total ITspending)

Consulting $528.40 (12.9%)

Implementation $2,026.30 (49.3%)

Operations management $259.20 (6.3%)

Training $240.80 (5.9%)

Support services $1,051.50 (25.6%)

Source: International Data Corporation (IDC), May 2003



49

IT Spending

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Index of Charts

B. IT Spending Growth EstimatesAccording to IDC’s December 2002 IT spending forecast for Western Europe,technology spending was initially expected to increase by 5.68% in 2003.

However, as mentioned previously, this forecast was reduced in April2003 to a growth rate of 2%, as a result of continued economic uncertaintyand relatively sluggish IT spending during the first quarter of the year.

In contrast to IDC’s cautious outlook during the spring of 2003, GartnerDataquest was still optimistic in March 2003, predicting that IT spending inWestern Europe would increase by 4.1% in 2003 and 4.2% in 2004.

Gartner’s forecast was revised downward by September, however, afterspending was slower than it had anticipated during the first half of theyear. Based upon this revised outlook, Gartner has most recently estimatedthat IT spending will increase by 2.3% in 2003 and 2.7% in 2004.

Change in Annual IT Spending in Western Europe,2002-2004

2002 -0.88%

2003 5.68%

2004 9.88%



Change in Annual IT Spending in Western Europe,2002-2007

2002-1.1%

2003 4.1%

2004 4.2%

2005 4.9%

2006 4.5%

2007 3.6%




50

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A third comparative estimate from the European Information TechnologyObservatory (EITO) found in October 2003 that IT spending in WesternEurope was on track to decline by 0.7% in 2003. Looking ahead to 2004,the EITO predicts that IT spending will grow by 2.2%, to reach Euro 292billion by year’s end.

Hardware spending is expected to recover from a 4.1% contraction in2003 to post positive growth in 2004, while software spending is projectedto lead IT spending growth, as it increases by 4.6% in 2004.

In a separate forecast for telecommunications spending, the EITO estimatesthat telecom expenditures in Western Europe grew by 2.6% in 2003, toreach Euro 305 billion. In 2004, regional telecom spending is forecast toincrease by another 3.8%, at Euro 317 billion.

Based upon results of a late-2003 study that surveyed 490 IT executivesfrom Western Europe, Forrester Research has produced a mixed outlook forIT spending in the region, with some countries expected to post modest ITspending growth, while others are expected to struggle.

“In 2004, IT spending will grow at a healthy rate inFrance and the UK but will remain flat – or even gonegative – in Germany and the Netherlands.”— Senior Analyst, Charles Homs, Forrester Research

Forrester estimates that IT spending in the United Kingdom will grow by asmuch as 6.2% in 2004, while companies in France will increase their ITspending by an average 3.6% during the coming year. Spending onenterprise applications such as ERP and SCM software is expected to leadtechnology spending growth in France, while IT outsourcing and newtechnology initiatives will drive spending in the UK.

Change in Annual IT Spending in Western Europe,2003 & 2004

2003-0.7%

2004 2.2%

Source: European Information Technology Observatory (EITO), October 2003


Estimated Growth in Western EuropeanTelecommunications Spending, 2003 & 2004

2003 2.6%

2004 3.8%

Source: European Information Technology Observatory (EITO), October 2003



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After Germany saw IT spending contract by 4% in 2003, Forrester predictsthat Germany will see another 1% reduction in IT spending during 2004.Forrester believes that medium and large companies in Germany willcontinue to cut costs by outsourcing more of their IT operations, therebypermitting them to reduce internal staff. Although spending onoutsourcing is expected to see growth in 2004, Forrester believes thatGerman firms will reduce their spending on IT consultants and integrators.

As for the most popular IT initiatives across the entire sample group,Forrester found that ERP upgrades are on the agenda for about one third ofsurvey respondents, followed by content management and call centerapplications which are expected to be in high demand among WesternEuropean companies as well.

Compared to the relatively mature markets of Western Europe, Centraland Eastern Europe has been one of the fastest growing markets for ITspending throughout the world. With several countries in this regionpreparing for entry into the European Union in the spring of 2004, ITspending is expected to remain strong throughout the current year.

According to its December 2002 forecast, IDC estimates that IT spendingin Central and Eastern Europe will increase by more than 11.5% in 2004.

Gartner Dataquest is somewhat more cautious about IT spending in Centraland Eastern Europe than IDC, although Gartner nonetheless predictsrelatively solid IT spending growth of 7.9% in 2004.

Between 2002 and 2007, Gartner estimates that IT and telecom spendingin the region will increase by a compound annual growth rate of 7.6%.

IT Spending Growth in Central and Eastern Europe,2002-2004

2002 10.58%

2003 11.58%

2004 11.55%



IT Spending Growth in Central and Eastern Europe,2002-2007

2002 14.4%

2003 10.0%

2004 7.9%

2005 8.2%

2006 6.7%

2007 5.4%



IVMethodology 7

I WW IT Spending 11

II North America 29

III Europe 41




V Latin America 63



Index of Charts 115


53

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IT Spending

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Index of Charts

A. IT Spending ForecastsWith worldwide IT spending expected to increase by a 4.5% compoundannual growth rate between 2003 and 2006, the Aberdeen Group predictsthat the Asia-Pacific region will lead worldwide IT spending growth,increasing by a CAGR of 6.5% during the same four-year period.

This compares with a compound annual growth rate of 4.9% for ITspending in North America, while Europe is forecast to see spending growby a 2.6% compound annual rate between 2003 and 2006.

Based upon its most recent technology spending forecast from December2002, the Aberdeen Group predicts that IT spending in the Asia-Pacificregion will increase by 6.6% in 2004, to $288 billion.

A comparative forecast from IDC estimates that IT spending in the Asia-Pacific region will total $203.0 billion in 2004, after increasing 11.9% over2003 spending of $181.3 billion.

IT Spending in the Asia-Pacific Region, 1999-2006 (inbillions)

1999 $239

2000 $251

2001 $252

2002 $257

2003 $270

2004 $288

2005 $308

2006 $330



IT Spending in the Asia-Pacific Region, 2001-2004 (inbillions)

2001 $164.40

2002 $165.95

2003 $181.30

2004 $203.01




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In December 2003, IDC released its latest estimates, predicting that ITspending in the Asia-Pacific region (excluding Japan) would total $88billion in 2004 – an increase of more than 11% over 2003 spending. Takentogether, China, India, and South Korea are expected to account for 80% ofthe incremental growth in regional IT spending during the coming year.

According to Gartner Dataquest’s IT spending forecast – one that breaksout the Japanese market from the rest of the Asia-Pacific region - ITspending is expected to grow to $281.2 billion in 2004, increasing by 7.9%over the $260.5 billion that was spent throughout the Asia-Pacific regionin 2003.

As mentioned previously, it is worthwhile to note that Gartner includestelecommunications spending as part of its overall IT spending forecast,whereas IDC and the Aberdeen Group do not.

Separately, Gartner Dataquest predicts that IT spending in Japan will growby 4.4% in 2004, from $243.6 billion in 2003 to $254.3 billion this year.

IT Spending in the Asia-Pacific Region (excludingJapan), 2002-2007 (in billions)

2002 $240.1

2003 $260.5

2004 $281.2

2005 $304.1

2006 $323.2

2007 $340.3



IT Spending in Japan, 2002-2007 (in billions)

2002 $235.6

2003 $243.6

2004 $254.3

2005 $266.2

2006 $281.4

2007 $289.2




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As most observers of the Asia-Pacific region are well aware, with theexception of Japan, China has fast become the largest consumer ofinformation technology within the region. In March of 2003, IDC estimatedthat IT spending in China would total $24.9 billion in 2003, an increase of11.5% over 2002 IT spending of $22.3 billion.

Australia and South Korea are the next two biggest markets in the Asia-Pacific region, with 2003 IT spending of $14.1 billion and $12.2 billion,respectively. And although India is only the fifth largest market bytechnology expenditures, IT spending in India is growing rapidly,increasing by an estimated 13.2% in 2003.

IT Spending in the Asia-Pacific Region, by Country,2002 & 2003 (in millions)

China

$22,319

$24,908

Australia

$13,567

$14,194

South Korea

$11,662

$12,250

Taiwan

$4,614

$4,890

India

$4,545

$5,147

Singapore

$3,049

$3,186

Hong Kong

$2,521

$2,543

Malaysia

$2,115

$2,226

New Zealand

$1,992

$2,022

continued on page 57


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Looking ahead to regional IT spending in 2004, IDC predicted in its latestDecember 2003 forecast that IT spending in China will grow by 18% in2004, to reach $29.4 billion by year’s end. Other key markets of Singaporeand Hong Kong are forecast to see technology spending of $3.24 billionand $2.60 billion, respectively.

IT Spending in Select Countries in the Asia-PacificRegion, 2004 (in billions)

China $29.40

Singapore $3.24

Hong Kong $2.60

Source: International Data Corporation (IDC), The Business Times,December 2003


Thailand

$1,774

$1,937

Indonesia

$1,196

$1,248

Philippines

$961

$1,079

Vietnam

$394

$432

Others

$974

$1,080

2002 2003

Source: International Data Corporation (IDC), March 2003; Hong KongSoftware Industry Information Centre (SIIC), May 2003



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IDC estimates that China will increase its spending on IT hardware from$17.75 billion in 2003 to $20.45 billion in 2004, accounting for 69.5% ofthat country’s overall IT spending for the year. By comparison, IT servicesspending in China is expected to reach $5.69 billion in 2004, whilesoftware spending should total $3.27 billion by year’s end.

When regional technology spending is broken down by category, theAberdeen Group estimates that hardware spending will grow from $124billion in 2002 to $155 billion in 2006.

Not surprisingly, software and services spending are relatively lowerthan hardware spending, as businesses in the region’s developing countriesare still building out their IT infrastructure.

Comparative data from IDC confirms that hardware spending accounted foras much as 60% of regional IT expenditures in 2003, with storage solutionsnamed as the single largest category of IT investment, at more than $4billion last year.

“With e-business implementation throughout theAsia/Pacific region, storage capacity has also beenexpanding exponentially to cope with the additionaldata traffic and demands for data storage.”— Robin Giang, Manager, IDC Asia-Pacific

IT Spending in China, by Category, 2004 (in billions)

Hardware $20.45

Services $5.69

Software $3.27



IT Spending on Hardware, Software and Services inthe Asia-Pacific Region, 2002 & 2006 (in billions)

2002

$124

$47

2006

$155

$66

$109

Hardware Software Services




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IDC has gone on to note that enterprise resource management solutionsspending in the Asia-Pacific region (excluding Japan) totaled $3.9 billionin 2003, ahead of security solutions spending, which came in at $1.7 billionin spending.

While overall hardware spending is forecast to see 10.5% growth in2004, IT services spending is expected to grow by a much faster rate of13.4% this year.

IDC predicts that packaged software spending will increase by a similarlystrong 13.0% in 2004.

And finally, a third comparative estimate from Gartner Dataquest showsthat IT services spending has seen the fastest growth of all IT spendingcategories during the past three years. Software spending has also seensteady growth during the last two years, while it appears that telecomspending in the Asia-Pacific region has seen a significant jump in 2003,increasing by 10.4% over spending in 2002.

IT Spending in the Asia-Pacific Region, by Segment,2001-2004 (in billions)

2001 2002 2003 2004

Hardware $44.3 $43.9 $46.4 $51.3

IT services $17.2 $19.3 $21.6 $24.5


Total $69.8 $71.7 $77.2 $86.2

Growth 2.6% 7.6% 11.7%

Source: International Data Corporation (IDC), March 2003


Hardware $37,213 0.6% $38,567 3.6% $40,949 6.2%

IT Spending in the Asia-Pacific* Region, by TechnologySegment, 2001-2003 (in millions and year-over-yeargrowth)

Total market

2001

Marketvalue

Annualgrowth

$244,790 0.8%

2002

Marketvalue

Annualgrowth

$258,922 5.8%

2003

Marketvalue

Annualgrowth

Telecom $174,071 0.5% $183,618 5.5% $202,703 10.4%

IT Services $28,388 8.4% $31,285 10.2% $35,135 12.3%

Software $5,118 1.5% $5,452 6.5% $5,843 7.2%

$284,630 9.9%

Note: *excluding JapanSource: Gartner, October 2003



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B. IT Spending Growth EstimatesAccording to IDC’s December 2002 IT spending forecast, technologyspending in the Asia-Pacific region is expected to grow by 11.9% in 2004,after increasing by an already strong 9.25% in 2003.

In a separate forecast from April 2003, IDC predicted that 2003 ITspending in Japan would decline by 1.4%, due to continued economictroubles resulting from an increasing unemployment rate.

Similar to IDC, Gartner Dataquest has forecast relatively strong technologyspending growth in the Asia-Pacific region, with IT spending expected toincrease by a 7.2% compound annual growth rate between 2002 and 2007.

In 2004, IT spending is expected to increase by 8.0%, after postinggrowth of 8.5% in 2003.

IT Spending Growth in the Asia-Pacific Region,2002-2004

2002 0.94%

2003 9.25%

2004 11.98%



IT Spending Growth in the Asia-Pacific Region(excluding Japan), 2002-2007

2002 2.5%

2003 8.5%

2004 8.0%

2005 8.1%

2006 6.3%

2007 5.3%




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Gartner’s forecast for Japan is somewhat less optimistic, however, with ITspending expected to grow by a 4.2% compound annual rate between 2002and 2007.

After seeing technology spending contract by 1.0% in 2002, Gartner haspredicted that IT spending in Japan will rebound with 3.4% growth in 2003and a 4.4% increase in 2004.

In a comparison of the relative compound annual growth rates for ITspending between some of the largest markets in the Asia-Pacific region,China is by far the hungriest market for technology, with technologyspending expected to increase by a CAGR of 14.6% between 2002 and 2006.

The Aberdeen Group also predicts substantial growth for India and SouthKorea, while the more mature markets of Australia and Japan are expectedto see single-digit IT spending growth of 7.1% and 2.3%, respectively.

Change in Annual IT Spending in Japan, 2002-2007

2002-1.0%

2003 3.4%

2004 4.4%

2005 4.7%

2006 5.7%

2007 2.8%



CAGR for IT Spending for Select Countries in theAsia-Pacific Region, 2002-2006

China 14.6%

India 10.9%

South Korea 10.8%

Australia 7.1%

Japan 2.3%




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With China, India, and South Korea expected to account for 80% ofregional IT spending growth in 2004, IDC believes that India will see thefastest growth, as its IT spending increases by 19% during the current year.China is expected to see IT spending growth of 18% during 2004, while ITspending should increase by 9% in South Korea.

Between 2003 and 2007, IDC predicts that security, CRM, and e-commercesolutions spending will see the fastest growth among enterprise solutionsspending in general, with each category expected to increase by acompound annual growth rate of more than 20%.

IDC has also found in early 2004 that governments and businesses in theAsia-Pacific region are continuing to look for ways to expand electroniccommunications with their trading partners, with a focus on improvingsecurity and efficiency of information flows.

IT Spending Growth for Select Countries in theAsia-Pacific Region, 2004

India 19%

China 18%

South Korea 9%

Singapore 4%

Hong Kong 3%



Leading Enterprise Solutions Spending Categories inthe Asia-Pacific Region (excluding Japan), 2003-2007(by compound annual growth rate)

Security 25%

Customer relationship management (CRM) 23%

E-commerce solutions 20%

Source: International Data Corporation (IDC), January 2004


V

Methodology 7

I WW IT Spending 11

II North America 29

III Europe 41


V Latin America 63





Index of Charts 115


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A. IT Spending ForecastsAfter technology spending growth in Latin America stalled between 2000and 2002, the Aberdeen Group estimates that IT spending started to recoverin 2003, growing by 4.4% last year, ahead of anticipated growth of 2.8% in 2004.

IDC was similarly optimistic about a technology spending recovery in LatinAmerica for 2003, when it predicted that IT spending in the region wouldincrease 10.4% to $27.6 billion, prior to seeing additional growth of 11.1%in 2004.

IT Spending in Latin America, 1999-2006 (in billions)

1999 $62

2000 $66

2001 $66

2002 $67

2003 $70

2004 $72

2005 $74

2006 $77




2001 $28.19

2002 $24.95

2003 $27.56

2004 $30.62




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According to a mid-2003 update on the Latin American market, IDCforecast that IT services would lead technology spending growth,increasing at a rate of 10.4% in 2004. After both hardware and servicesspending in the region had been cut dramatically in 2002 and 2003, IDCalso predicted that by the end of 2004 regional spending for each of thesecategories will return to levels last seen in 2001.

Software spending in Latin America has remained relatively stable since2001, and is expected to continue increasing at a steady rate during thenext several years, to reach more than $4 billion by 2007.

A third comparative estimate from Gartner Dataquest finds thatcombined IT and telecom spending in Latin America totaled $133.3 billionin 2003, prior to growing another 8.5% to reach $144.6 billion in 2004.

Between 2002 and 2007, Gartner estimates that IT spending in LatinAmerica will increase by a compound annual growth rate of 7.2%.

In looking at the leading national markets within Latin America, researchfrom the Alta Group notes that although Brazil has a very strong domesticcomputer and peripherals manufacturing base, the Brazilian market offers asignificant opportunity for software sales, especially for vendors ofenterprise applications such as ERP, CRM and SCM solutions.

Security, disaster recovery, and anti-virus solutions are expected to seestrong sales in Brazil as well.

In Mexico, the Swedish Trade Council has identified the small andmedium business (SMB) market as a significant long-term opportunity,since few of these companies have extensive IT systems. The Alta Grouphas also noted that because few Mexican SMBs have adequate resources tomanage their own IT systems, many are turning to hosted enterprisesolutions that are managed by application service providers (ASPs).

The Swedish Trade Council has identified the financial services industry,manufacturing sector, and the retail industry as being the largest verticalmarkets for technology spending in Mexico.


2002 $125.9

2003 $133.3

2004 $144.6

2005 $158.3

2006 $170.6

2007 $180.9




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Just 3% to 5% of the entire Mexican population currently has Internetaccess, according to the Swedish Trade Council, which indicates that PCsales will show strong growth in Mexico, as its economy continues toimprove. Investment in telecommunications infrastructure is expected toexpand as well, with SMBs and consumers driving demand for improvedbroadband Internet access, and wireless services.

Once Argentina’s economic recovery is on a firmer footing, the AltaGroup believes that IT services spending will lead growth, just ahead of e-commerce solutions, network security systems, and disaster recoverysolutions. Call center management, Web site development, and documentmanagement and storage are also expected to be bright spots in Argentina.


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B. IT Spending Growth EstimatesIn December 2002, IDC estimated that technology spending would recoverin Latin America after a difficult year during which IT spending contractedby more than 11.5%.

Looking ahead to 2003 and 2004, IDC predicted IT spending growth of10.4% and 11.1%.

In mid-2003, however, IDC scaled back its IT spending forecast for LatinAmerica, projecting overall growth of 8.2% for 2004, with servicesspending leading the way. Software spending is also forecast to seerelatively strong growth of 9.4% in 2004, while hardware spending isexpected to increase by a healthy 6.7% this year.

Change in Annual IT Spending in Latin America,2002-2004

2002-11.51%

2003 10.46%

2004 11.12%



IT Spending Growth in Latin America, by Category,2004

IT hardware 6.7%

IT software 9.4%

IT services 10.4%

Overall IT spending 8.2%

Source: International Data Corporation (IDC), June 2003



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According to its most recent global Black Book update in November 2003,IDC has pared back its growth forecast once again, as it now expects that ITspending in Latin America will grow by a still-healthy 7% rate in 2004,with IT services spending leading the way.

Compared to IDC’s estimate of an 11.5% decline in IT spending during2002, Gartner Dataquest estimated that technology spending in LatinAmerica fell by a narrower 2.5%.

Based upon an improved economic outlook for the region, Gartnerpredicts a return to IT spending growth in 2003, however, with technologyspending forecast to have increased by 5.9% by the end of 2003, andanother 8.5% in 2004.

Change in Annual IT Spending in Latin America,2002-2007 (in billions)

2002-2.5%

2003 5.9%

2004 8.5%

2005 9.4%

2006 7.8%

2007 6.0%



VI

Methodology 7

I WW IT Spending 11

II North America 29

III Europe 41


V Latin America 63



Index of Charts 115


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According to research from Gartner Inc., financial services firms,technology manufacturers and telecommunications companies spend themost on IT, by dollar value of their annual technology purchases. Witheach of these technology-intensive industries posting a relatively strongsecond half of 2003, many observers believe that the outlook for ITspending in 2004 has improved as a result.

By comparison, IDC estimates that the discrete manufacturing andbanking sectors are the biggest IT spenders worldwide, accounting for 13%and 12% of global IT spending, respectively. Despite the difficult time thatmanufacturers have had over the past few years, IDC believes that with thegrowing recovery in manufacturing, IT spending by this sector will total$225 billion by 2007.

Similar spending growth by governments from around the world willmake the government sector a $126 billion opportunity in four years’ time.

Gartner has found that on average, most large companies spend about4% of their revenues on information technology. Companies in thetelecommunications and banking industries are forecast by Gartner toexceed this average in 2004, with telecom firms significantly increasingtheir portion of revenues spent on IT from 5.3% in 2003 to 6.3% in 2004.

Average IT Operating Budget, by Industry, 2003 & 2004(as a % of company revenues)

2003 2004

Telecommunications 5.3% 6.3%

Banking 4.2% 4.3%

Healthcare 2.3% 2.7%

Services 2.7% 2.4%

Petroleum 1.6% 1.8%

Education 1.8% 1.8%

Utilities 1.4% 1.4%

Transportation 1.8% 1.4%

Process manufacturing 1.5% 1.1%

Source: Gartner, November 2003



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Looking back at spending trends during the first half of 2003, ForresterResearch found in a mid-year survey that roughly one third of technologymanufacturers, telecommunications firms, and general manufacturers wereall spending below their anticipated IT budget levels for the year.

Very few businesses said that they were spending ahead of their budgetsfor 2003, although 15% of financial services firms and 14% of retailers saidthat they were currently spending above their IT budgets, as of the end ofthe first half of 2003.


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IT Spending among Companies in North America, byIndustry, 2003 (as a % of respondents)

Consumer services

11%

77%

11%

Consumer products

3%

84%

13%

Business services

11%

73%

16%

Financial services

15%

68%

18%

Insurance

9%

66%

26%

Retail

14%

60%

26%

General manufacturing

9%

58%

33%

Technology and telecom

10%

57%

33%

Overall

10%

68%

23%

Above current budget On budget Below current budget

Note: numbers may not add up to 100% due to roundingSource: Forrester Research, June 2003



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Closer to the end of 2003, Gartner found that IT spending by thecommunications industry was on track to come in 17% lower than it hadbeen in 2002. Gartner estimates that the financial services industry reducedtechnology spending by 13% in 2003, while the retail distribution industrycut IT spending by 12%.

By comparison, among those industries that are estimated to have seenthe greatest growth in IT spending during 2003, the Meta Group lists thepharmaceutical, food and beverage, hospitality, and retail industries ashaving increased their IT spending by more than 5% last year.

Looking ahead to 2004, Gartner predicts a significant turnaround intechnology spending by the communications industry, which is expected toincrease outlays by 25%. Discrete manufacturing, government and theservices sector are all forecast to see double digit IT spending growth in2004 as well.

Survey data from Forrester Research shows that respondents from thecombined technology and telecommunications industry saw their ITspending increase by an average 2.7% in 2003, while financial servicesfirms saw an average 1.7% decline in spending.

Forrester Research surveyed a total of 549 senior IT executives fromNorth American companies for this study.

Estimated Change in IT Spending, by Industry, 2003 &2004

2003 2004

Communications -17% 25%

Manufacturing - discrete -2% 13%

Government (all) -6% 12%

Services -15% 11%

Healthcare -0.3% 9%

Petroleum 5% 4%

Financial services (all) -13% 2%

Manufacturing - process 14% -1%

Manufacturing - process/food 7% -1%

Distribution - retail -12% -8%

Utilities 6% -9%

Transportation 0% -12%

Manufacturing - process/chemicals 8% -17%

All Industries -1% 5%




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Retailers posted the largest increase in IT spending during 2003, and arealso planning to see the greatest growth in 2004, with IT spending expectedto increase by 4.4% over spending in 2003.

Other leading growth spots include the insurance, consumer services andhigh tech/telecom industries, all of which are expecting to see spendinggrowth of more than 2.5% in 2004. According to this late-2003 survey,firms from the financial services industry are, on average, only expectingto see modest IT spending growth of 0.9% this year.

Breaking out the IT budget plans of respondents from each industry,Forrester Research found that 45% of retailers are expecting a budgetincrease in 2004, followed by 40% of insurance companies and 31% ofconsumer services firms.

A significant 35% of high tech and telecom firms also plan to see animprovement in their IT budgets during 2004, while more financial servicesfirms expect a decline in their 2004 IT spending than a decrease, accordingto the Forrester Research study.

North American Companies' Average Change in ITSpending, by Industry, 2003 & 2004

2003 2004

Retail 3.2% 4.4%

Insurance 2.0% 3.4%

Consumer services 6.3% 3.3%

Tech and telecom 2.7% 2.7%

Distribution 2.6% 2.7%

Business services 2.3% 1.2%

Financial services -1.7% 0.9%

Finished goods manufacturing 7.4% 0.8%

Utilities -3.2% 0.6%

Chemicals and petroleum 0.7% -0.8%

Primary production and supply -1.0% -2.5%

Overall 1.9% 1.7%

Note: n=549 senior executivesSource: Forrester Research, November 2003



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North American Companies' Anticipated Change in ITBudgets, by Industry, 2004 (as a % of respondents)

Retail

4%

45%

Insurance

22%

40%

Consumer services

21%

31%

Tech and telecom

16%

35%

Distribution

12%

37%

Business services

13%

32%

Financial services

32%

26%

Finished goods manufacturing

17%

25%

Utilities

23%

23%

Chemicals and petroleum

29%

29%

Primary production and supply

30%

15%

Overall

19%

32%

Decrease budget Increase budget

Note: n=549 senior executivesSource: Forrester Research, November 2003



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Using an index to rate the relative IT spending growth prospects for 12separate industry verticals, Giga Research scored each industry on a scaleof 0 to 2, according to multiple variables such as an industry’s expectationsfor improved revenues and profitability, as well as possible strategic(competitive) and productivity concerns that might motivate businesses tospend more on IT.

According to the index, a score of 0 indicates a declining or below-averagetrend, while a score of 2 indicates a growing or above average trend.

Based upon each industry’s average score across all variables, the healthcare, media and retail/distribution industries are the most likely to increasetheir spending on IT in 2004. In particular, profitability was the strongestmotivator for increased spending among health care firms, while the mediaindustry scored 2.0 for revenue growth and productivity concerns.Strategic concerns and profitability were the best motivators behindretailers’ improved IT spending.

Interestingly, when value added resellers (VARs) were asked to select thoseindustries that they believe offer the greatest opportunity for IT sales overthe next 3 years, the banking and finance industry was chosen as the mostpromising by 37% of respondents.

One third of respondents to the VARBusiness study named the federalgovernment as the most promising market opportunity through 2006,while 30% of VARs picked the health care industry.

IT Spending Prospects in North America, by Industry,2004 (based on index score of 0 to 2*)

Health care 1.6

Media 1.6

Retail and distribution 1.6

Insurance 1.5

Consumer goods 1.4

Telecommunications 1.4

Federal government 1.3

Banking 1.3

Non-bank finance 1.3

Information technology 1.3

Pharmaceuticals 1.3

Professional services 1.3

Note: n=549 senior executives at North American companies; *where 0 =declining or below average, and 2 = growing or above averageSource: Giga Information Group, December 2003



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When it comes to software spending, IDC believes that the healthcare,construction, and services industries will form the biggest opportunity overthe next four years, spending a combined $87.2 billion worldwide onsoftware in 2007.

By comparison, within North America Forrester Research has found thatretailers, insurance companies, and financial services firms are the mostoptimistic about their software spending plans for 2004.

On average, 30% of the firms that Forrester surveyed plan to increasetheir application software spending in 2004, compared with 19% whoexpect to decrease their spending.

Industry Verticals that Large Value Added ResellersBelieve Will Be the Most Promising over the Next 3Years, 2003 (as a % of respondents)

Banking and finance 37%

Federal government 33%

Health care 30%

Manufacturing 21%

Communications 19%

State government 17%

Education 16%

Insurance 14%

Retail 11%

Local/county government 10%

Note: n=large value added resellers with revenues of more than $10millionSource: ARC Research; VARBusiness, November 2003



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North American Companies' Anticipated Change inApplication Software Budgets, 2004 (as a % ofrespondents)

Retail

4%

40%

Insurance

19%

38%

Financial services

21%

37%

Utilities

30%

30%

Services

17%

29%

Finished goods manufacturing

14%

28%

Tech and telecom

17%

28%

Distribution

18%

25%

Chemicals and petroleum

28%

23%

Primary production and supply

27%

22%

Overall

19%

30%

Decrease budget Increase budget

Note: n=549 senior executivesSource: Forrester Research, December 2003



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With IT outsourcing having become an increasingly popular means ofreducing IT costs for many large enterprises, Gartner has in mid-2003published a study of 1,055 IT outsourcing contracts that had been issuedduring the previous 14 years.

Among the study’s key findings, Gartner discovered that firms from thefinancial services industry shared the top position with the federalgovernment, in terms of their willingness to turn to third parties to run ormaintain at least some of their IT operations.

Not surprisingly, a significant number of telecommunications companieshave also announced IT outsourcing contracts worth more than $1 billion,compared with just 7 high tech firms that have done so as well.

While the average contract value among the 1,055 IT outsourcing dealsstudied by Gartner was just $47 million, the researchers found that theaerospace industry had the highest average contract value, of $88.2 million.

Automotive manufacturers paid a similarly high $87.4 million onaverage for their outsourcing deals, while financial services firms werecloser to the overall average, at $49.6 million per IT outsourcing contract.

Comparative analysis from IDC predicts that the banking, insurance andutilities industries will be the three biggest IT outsourcers by 2007,spending a combined $162.3 billion on IT outsourcing in four years’ time.

Average Annual Value of IT Outsourcing Contracts, byIndustry, 1988-2003 (in millions)Aerospace/defense $88.2

Automotive* $87.4

High technology $80.5

Telecommunications $79.9

Financial services $49.6

Note: n=1,055 IT outsourcing contracts awarded since 1988; *not includinga $40 billion, 1996 master contract between General Motors and EDSSource: Gartner, May 2003


Number of Announced IT Outsourcing Contracts inExcess of $1 Billion, by Industry, 1988-2003Financial services 17

Central government 17

Telecommunications 12

Transportation 11

Manufacturing 8

Aerospace/defense 8

High technology 7

Note: n=1,055 IT outsourcing contracts awarded since 1988Source: Gartner, May 2003


VII

Methodology 7

I WW IT Spending 11

II North America 29

III Europe 41


V Latin America 63



A. IT Spending in 2003 82

B. IT Spending in 2004 92

C. IT Spending Priorities 97

Index of Charts 115


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Index of Charts

A. IT Spending in 2003According to the Meta Group’s annual Worldwide IT Benchmark Report2004, IT spending among Global 2000 companies increased by a modest1.2% in 2003. In total, 304 Global 2000 organizations from 31 countrieswere surveyed for this study.

Weak profits, along with sufficient IT infrastructure and capacity werethe main reasons behind many firms’ reluctance to increase their ITspending, although the Meta Group did find that 28% of surveyrespondents said that they had raised their IT spending during 2003. About39% of the organizations surveyed said that they had reduced their ITspending in 2003, compared with 38% who had done so in 2002.

At first glance, comparative data from Computer Economics appears to beslightly more optimistic than that of the Meta Group, with 40% of large UScompanies interviewed by Computer Economics confirming that they hadincreased their IT budgets in 2003.

Large firms are defined by Computer Economics as companies withrevenues of more than $750 million.

However, Computer Economics notes that the percentage of large firmsreporting a decline in their 2003 IT spending is the highest that its annualsurvey has ever recorded. Furthermore, those companies reporting adecrease in their IT spending indicated that they had cut their budgetssignificantly, while those firms that increased their IT spending said thatthey had only posted a modest increase in the dollar value of theirtechnology spending.

Global 2000 Companies' Change in IT Spending, 2003(as a % of respondents)

Increased 28%

No change 34%

Decreased 39%

Note: n=304 organizationsSource: META Group, November 2003



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Looking ahead to 2004, Computer Economics predicts that a significant37% of large firms will decrease their IT spending during the coming year,although this is nonetheless expected to mark the beginning of animproving trend in the technology spending environment.

Large Companies'* Change in Annual IT Budget,2000-2004 (as a % of respondents)

2000 2001 2002 2003 2004

Increase in IT budget 47% 48% 38% 40% 38%

No change in IT budget 35% 32% 34% 16% 25%

Decrease in IT budget 18% 20% 28% 44% 37%

Note: *over $750 million in revenuesSource: Computer Economics, November 2003



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“For the first time in two years, IT managers aremore optimistic going into the second half of theyear than they were at the start of the year.”— Tony Friscia, AMR Research

Indeed, AMR Research found at the end of the second quarter of 2003, that42% of the CIOs it surveyed believed that their IT budgets would increaseduring the next 12 months, compared with just 27% of CIOs who thoughtthe same thing one year before.

The improving economic picture and competitive concerns were theprimary motivators behind many CIOs’ plans to increase their IT spending,although several companies cited the need to comply with new governmentregulations such as the Sarbanes-Oxley Act as a driver of IT spending as well.

US CIOs' Anticipated Change in IT Budget in the Next12 Months, 2002-2003 (as a % of respondents)

Q2 2002

40%

15%

45%

Q3 2002

49%

24%

27%

Q1 2003

44%

18%

38%

Q2 2003

40%

19%

42%

Stay the same Decrease Increase

Source: AMR Research, October 2003



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As of the third quarter of 2003, CIOs expected to see their IT spendingincrease by an average 3.5%, up from anticipated growth of 1.7% at thebeginning of the year, and projected growth of just 1.0% at the mid-pointof 2002.

In October 2003, Morgan Stanley surveyed 225 Fortune 1000 CIOs, findingthat 52% of respondents believed that by the end of the year, they will havespent more on IT during 2003 than they had in 2002.

A narrower 21% of CIOs expected that their IT budgets would remain flat,while the remaining 28% thought that their IT spending would decreaseyear over year. Interestingly, when the same question had been asked inSeptember 2003, 53% of respondents had said that their IT budgets wouldsee a year over year decline.

US CIOs' Anticipated Growth in IT Budgets in the Next12 Months, 2002-2003 (as a % of respondents)

Q2 2002 1.0%

Q3 2002 0.2%

Q1 2003 1.7%

Q2 2003 3.4%

Q3 2003 3.5%

Source: AMR Research, October 2003


US CIOs' Expected Change in IT Budgets, October 2003(as a % of respondents)

Increase by greater than 10% 3%

Increase by 6% to 10% 17%


No change 21%

Decrease by 0% to 5% 17%


Decrease by greater than 10% 2%

Note: n=225 Fortune 1000 CIOsSource: Morgan Stanley, November 2003



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According to the Meta Group’s study, IT spending as a percent of companyrevenues saw a slight increase last year, rising from an average 3.6% ofrevenues in 2002 to 3.8% in 2003.

Spending on security software has been one of the leading drivers behindthis increase, while the Meta Group has noted that spending on hardwareand infrastructure also saw some growth during the first half of 2003, butleveled off during the closing months of the year.

Comparative data from a survey of the InformationWeek 500 is similar to the Meta Group’s findings, with respondents to the InformationWeekstudy indicating that they spent an average 3.66% of their revenues on ITduring 2003.

IT budgets among the top 500 technology users polled by InformationWeekmagazine are expected to increase by 4.5% in 2004, growing from anaverage $353.0 million in 2003 to $369.0 million in the coming year.However, since overall business revenues are projected to see growth as well,IT budgets are expected to remain steady at 3.65% of 2004 revenues.

Global 2000 Companies' Average IT Spending as aPercent of Revenues, 2002 & 2003

2002 3.6%

2003 3.8%



IT Spending by the InformationWeek 500, 2000-2004(in millions and as a % of total revenues)

Average IT dollars spent

Average IT budget as a % of totalrevenues

2000

$442.2

4.31%

2001

$483.9

3.88%

2002

$319.6

3.39%

2003

$353.0

3.66%

2004

$369.0

3.65%

Source: InformationWeek, September 2003



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As a result of the continued interest in containing technology spending,InformationWeek found that most companies spent less on new technology purchases in 2003, and instead channeled more of their ITbudgets toward salaries and benefits. Approximately 20% of IT budgetswere spent on applications, while 17% were used to make new product ortechnology purchases.

Average IT Budget of InformationWeek 500Companies, 2002 & 2003 (in millions and as a % oftotal IT budget)

Salaries and benefits

$89.3 (27.9%)

$113.2 (32.1%)

Applications

$67.2 (21.0%)

$70.5 (20.0%)

New product or technology purchases

$62.2 (19.5%)

$60.2 (17.0%)

IT consulting outsourcing

$57.4 (18.0%)

$51.7 (14.7%)

Everything else

$35.5 (11.1%)

$45.7 (12.9%)

Research and development

$7.9 (2.5%)

$11.7 (3.3%)

2002 2003

Source: InformationWeek, September 2003



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By comparison, when CIOs were asked to look back at how their IT budgetswere spent during the course of 2003, Morgan Stanley found that hardwareaccounted for an average 23% of total spending. Another 20% of ITbudgets went to software, while 18% was spent on IT services.

As mentioned previously, the Meta Group has found that security softwarehas become a significant category for IT spending in 2003, with mostcompanies allocating between 6% and 10% of their IT budgets for generalsecurity-related initiatives. In 2003, security spending accounted for anaverage 8.2% of IT budgets, according to the Meta Group, compared withan average 7.6% of IT spending in 2002.

For more information on the latest trends in security spending, pleasesee eMarketer’s April 2004 IT Security spotlight report. Sign up forreport notifications athttp://www.emarketer.com/products/reports/notify.php.

When asked about the leading challenges facing their technologydepartments, IDC discovered in a mid-2003 survey that roughly one thirdof companies were still concerned about the weak economy and poorcorporate profits, while another 21% of respondents said that they hadconcerns about their company’s short-term financial outlook.

US CIOs’ Breakdown of IT Spending at TheirCompanies, 2003

Hardware 23%

Software 20%

IT Services 18%

Communications 16%

Other 22%



Security Spending as a % of Global 2000 Companies'IT Budgets, 2001-2003

2001 3.2%

2002 7.6%

2003 8.2%





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IDC also found that there is a persistent belief among IT executives thattheir company’s current IT infrastructure is adequate – a mood that IDCrefers to as “good enough computing”. Echoing the Meta Group’s findings,15% of respondents to the IDC survey said that this mood has continued toact as a constraint on their IT spending in 2003.

In addition to this belief in sufficient IT resources, cost containment is arelated theme that has persisted within many companies’ IT departmentssince the beginning of the economic downturn as well.

Shortage of quality products6%

High costof IT11%

Skills shortage12%

"Good enough" computing mood15%

Company's short-term outlook21%

Weak economy/profits35%

Leading Challenges Cited by US IT Departments, 2003(as a % of respondents)




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IDC has found that 35% of respondents to its survey continued to cite theneed to reduce IT costs as a leading concern in mid-2003, followed by 21%of respondents who believe that improving their company’s ITinfrastructure is a leading priority.

“The mood of cost-control and caution persists, butalongside a realization of the urgent need forinfrastructure upgrades.”— Stephen Minton, Director of Worldwide IT Markets, IDC

In another mid-2003 study of 50 IT managers, Computer Economicsuncovered similar results to those of IDC, finding that infrastructuredevelopment or enhancement was the top near-term spending priorityamong one third of respondents.

Other IT spending priorities for the second half of 2003 included processand application development/enhancement, with 13% of companiesindicating that they expected to spend more on both the hiring andtraining of IT personnel.

US IT Executives' Technology Spending Plans for theSecond Half of 2003 (as a % of respondents)

Infrastructure development/enhancement 32%

Process development/enhancement 23%

Application development/enhancement 26%

IT personnel 13%

Miscellaneous 6%

Note: n= 50 IT managersSource: Computer Economics, November 2003


Front/backoffice integration8%Web projects

11%

New softwareapplicationsolutions23% Infrastructure

29%

Reducing costs of IT29%

Leading Technology Issues Cited by US ITDepartments, 2003 (as a % of respondents)




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When CIOs were asked in November 2003 about a possible recovery in theirown IT spending, 21.5% of respondents to the Deutsche Bank and CIOMagazine’s monthly poll said that their spending had already picked up,while another 2.9% said that they expected it to increase during the fourthquarter of 2003.

The largest portion of CIOs, at 25.1% of respondents, said that theyexpected their IT spending to recover during the first half of 2004.

“Historically, business confidence tends to lead ITspending confidence in an economic recovery.”— Brian Smith, VP Market Research and Analytics, Gartner, Inc.

These results are supported by those of Morgan Stanley’s monthly CIOsurvey, which found that as of October 2003, 64% of CIOs had a positiveoutlook for their company’s business prospects during the next six months,up from a low of 50% of CIOs who had a similar view in June.

IT Executives' Anticipated Timing for a Recovery inTheir Companies’ IT Spending, November 2003 (as a %of respondents)

Never slowed 15.3%

Already picked up 21.5%

Q4 2003 2.9%

First half 2004 25.1%

Second half 2004 17.8%

Not sure 17.5%

Note: n=275Source: CIO Magazine Tech Poll, December 2003



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B. IT Spending in 2004In mid-2003, AMR Research found that 80% of the companies it surveyedwere expecting their 2004 IT budgets to either remain steady or increasewhen compared to 2003 spending, with respondents indicating that theirtechnology spending would grow by an average 2% in 2004.

This compares with a late-2003 survey conducted by Forrester Research,which found that North American IT executives expect their technologybudgets to increase by an average 1.7% in 2004.

However, in another late-2003 survey, Gartner Inc. projected thatbusinesses would increase their IT budgets by 4.8% in 2004, marking thefirst increase in technology budgets since 2001.

And a fourth comparative estimate from the November 2003 CIO surveyconducted by Deutsche Bank and CIO Magazine found that CIOs expectedtheir IT budgets to increase by an average 4.2% during the following 12 months.

Annual Change in Global Companies' IT Budgets,1998-2004

1998 15.0%

1999 15.9%

2000 9.7%

2001 10.1%

2002-7.0%

2003-0.2%

2004 4.8%




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Just under 30% of respondents said that their IT budgets would increase bybetween 1% and 9%, while an additional 21.9% said that their budgetswould grow by as much as 10% to 19%.

In total, a substantial 65.2% of CIOs expected that their IT spendingwould increase in 2004, while 15.2% said it would remain flat, and 19.7%said it would decline.

IT Executives' Estimated Change in Their Companies’IT Budgets over the Next 12 Months, November 2003(as a % of respondents)

100%+ increase

0.7%

50% to 100% increase

1.9%

30% to 49% increase

3.3%

20% to 29% increase

7.8%

10% to 19% increase

21.9%

1% to 9% increase

29.6%

No change

15.2%

1% to 9% decrease

7.0%

10% to 19% decrease

7.4%

20% to 29% decrease

1.9%

30% to 49% decrease

0.4%

50% to 100% decrease

3.0%




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By comparison, Morgan Stanley’s October 2003 CIO survey found that 54%of CIOs expected their IT budgets to increase in 2004, while 28% said thattheir budgets would remain unchanged.

In line with other estimates projecting relatively slow growth in mostfirms’ IT budgets, a significant 37% of respondents said that their ITspending would increase by less than 5% in 2004, while a narrower 15% ofCIOs said that their IT spending would grow by between 6% and 10% whencompared with 2003 spending.

Just 18% of respondents to the Morgan Stanley survey indicated thattheir 2004 IT budgets would see a decline in the coming year.

US CIOs' Expected Change in Their Companies’ ITBudgets, 2004 (as a % of respondents)

Increase by greater than 10% 2%



No change 28%



Decrease by greater than 10% 1%




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Among those CIOs that are optimistic about their IT spending plans,approximately one fifth of respondents to the Deutsche Bank/CIO Magazinesurvey said that their IT spending would increase because of growing enduser demand. Similarly, another 16.9% of CIOs said that they were runningout of capacity, while 18.5% of respondents said that business at theircompany had improved.

On the other hand, weak profits and the perception that their company’sfinancial position will remain tight were the two most widely-cited reasons why CIOs believed their IT spending might be constrained over thecoming months.

“Controlled spending and a strict focus on return oninvestment will remain the rule in 2004.”— Arnie Berman, Technology Strategist, SoundView Technology Group

IT Executives' Main Reason for Their Companies’Current or Anticipated Increase in IT Spending,November 2003 (as a % of respondents)

Improving macroeconomic environment

9.4%

Business is better

18.5%

End-use demand is stronger

20.9%

Running out of capacity

16.9%

Competitive pressures

11.0%

Not sure

23.2%




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Another 24.1% of respondents indicated that their current IT systems were sufficient, thereby reducing their need to go out and spend more on technology.

IT Executives' Leading Concerns regarding TheirCompanies’ IT Spending over the Next 12 Months,November 2003 (as a % of respondents)

Profits are weak 35.0%

Financing conditions are tight 31.4%

Less pressure to keep up with competitors 3.3%

Current IT systems are sufficient 24.1%

Not sure 5.8%




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C. IT Spending PrioritiesDespite all indications that a modest recovery in technology spending willunfold in 2004, the aggregated survey data show that recent cost-cuttingtrends from 2002 and 2003 are not about to go away. Specifically, thismeans that businesses are continuing to look for ways to keep IT costsdown, or at least get the best value for their IT dollar. It also means thatsecurity will be a priority for most CIOs in 2004.

Indeed, when Merrill Lynch asked 75 US and 25 European CIOs inDecember 2003 about their IT priorities for the coming year, cost reductionremained at the top of their list, followed closely by security.

■ Cost reduction■ Security■ Application integration■ Sarbanes-Oxley compliance

By comparison, Gartner Inc. lists security, storage, Web services, applicationintegration and portals as leading IT investment priorities for 2004.

Slightly different results were discovered by Forrester Research, whichfound in an October 2003 survey that North American IT executives rankedupgrades to their security and disaster recovery capabilities as their mostimportant priorities for the coming year.

Based upon an index score of 1 to 4, where 4 ranks as being “mostcritical”, 25% of respondents ranked major applications upgrades as a“most critical” priority, while 21% of IT executives scored disaster-recoverysystem upgrades as a “most critical” priority for 2004.


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A significant 18% of respondents also ranked IT projects that supportcompliance with corporate governance changes as a top priority.

According to a separate October 2003 study of 200 large US companies,AMR Research found that 38% of respondents planned to place a highpriority on customer-driven IT projects during the next 12 months, with afocus on improving customer loyalty and retention rates.

Another 21% of respondents named infrastructure security andintegration initiatives as their biggest investment priorities for 2004.

Networking and telecommunications investments were expected to obtainthe most spending however, with 24% of respondents to the AMR Researchsurvey listing such technology as their largest investment priority.

When technology priorities are ranked by their relative share ofcorporate IT budgets, Morgan Stanley has found that storage hardware,infrastructure software, and network equipment are expected to see thegreatest growth as a share of IT spending in 2004.

North American IT Executives' Leading IT Initiativesfor 2004 (by average index* score)

Upgrade IT security environment 2.54

Upgrade disaster recovery capabilities 2.51

Deploy or upgrade major applications 2.46

Replace or upgrade PCs 2.33

Upgrade Windows desktop 2.31

Support corporate governance changes 2.28

Consolidate IT infrastructure 2.21

Replace proprietary systems 2.15

Implement services-based architecture 2.12

Move more IT to an IP environment 2.12

Centralize IT to eliminate shadow IT spend 2.04

Implement IT portfolio management 1.92

Consider IT outsourcing alternatives 1.80

Consider BPO alternatives 1.71

Move IT work offshore 1.61

Move more systems onto Linux 1.60

Note: n=818 IT decision makers*where 1=not on agenda, and 4=critical in 2004Source: Forrester Research, November 2003



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By contrast, enterprise applications, BPO initiatives, and PC software wereall expected to see the biggest decline in IT dollars, although it is surprisingto see that CIOs are projecting a drop in business process outsourcing. As anexplanation, Morgan Stanley suggests that by increasing their reliance uponbusiness process outsourcing, CIOs expect to see a decline in relatedexpenses that were formerly shouldered within their organization.

“Security, storage, wireless LANs, Linux andbusiness intelligence software were ranked as thetop priorities for IT spending in 2004.”— John Jones, Enterprise Systems analyst, SoundView Technology Group

When asked to look ahead to their IT spending plans for 2004, the Softwareand Information Industry Association (SIIA) found that 36% of NorthAmerican companies named wireless access and business mobilityinitiatives as the leading new technology projects that they would like tobegin, once their own IT spending is able to increase.

Leading IT Spending Priorities among US CIOs, 2004vs. 2003 (based on relative strength index level*)Storage hardware 1

Infrastructure software 2

Network equipment 3

Offshore services 4

Servers 5

Consulting and SI 6

IT outsourcing 7

PC hardware 8

Enterprise applications 9

Business process outsourcing 10

PC software 11

Note: *where 1 is the hightest and 11 is the lowest. n= 225 Fortune 1000CIOs Source: Morgan Stanley, November 2003



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Other new IT initiatives that are at the top of North American companies’lists include security-related projects, along with server and mainframeupgrades or replacements. Once again, infrastructure software upgrades orreplacements are among several firms’ leading IT priorities as well.

New Technology Projects that North AmericanCompanies Expect to Begin Once IT Spending PicksUp, 2003 (as a % of respondents)

Remote access/wireless access/mobility

36%

Security product/services

34%

Server/mainframe purchase/upgrade/replacement

30%

Desktop purchase upgrade/replacement

28%

Infrastructure software purchase/upgrade/replacement (e.g.application servers, middleware, etc.)

28%

CRM projects/Sales force automation projects

24%

Integration of existing applications (either by custom coding orlicensed integration software)

23%

Portal/intranet deployment

23%

Legacy system migration or integration

19%

Electronic commerce capabilities

17%

Personal productivity software upgrades

11%

Other

11%

ERP projects

4%

Source: Software & Information Industry Association (SIIA), October 2003



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As for new technologies that businesses plan to either adopt or continueusing, Web services have fast become a widely accepted new technology,followed closely by open source products and services.A significant 40% of businesses are also interested in adopting new mobilecomputing solutions as well.

Telecommunications and networking equipmentAccording to survey data gathered by Deutsche Bank and CIO Magazine,30.3% of IT executives plan to increase their spending ontelecommunications equipment in 2004, compared with 29.4% ofrespondents who expected to increase spending in 2003.

Just 20.3% of companies plan to decrease their telecom equipmentspending in the coming year, which is an improvement over the 28.1% ofrespondents who planned to do so heading into 2003.

New Technologies that North American CompaniesPlan to Begin Using or Continue to Use in 2004 , 2003(as a % of respondents)

Web services technologies and standards 66%

Open source products and services 57%

Software services/utility computing 40%

Grid computing technologies 21%

Mobile computing 11%



November 2002 November 2003

Decrease28.1%

Increase29.4%

Unchanged40.1%

Notsure2.3%

Decrease20.3%

Increase30.3%

Unchanged48.0%

Notsure1.5%

IT Executives' Planned Spending on Telecommunica-tions Equipment for Their Companies over the Next 12Months, 2002 & 2003 (as a % of respondents)

Note: n=299 for 2003, 271 for 2003Source: CIO Magazine Tech Poll, December 2003



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When it comes to network equipment spending, 41.8% of IT executivesplan to increase their budgets in 2004, while just 16.5% expect to decreasetheir spending.

As part of its annual survey of North American IT executives, ForresterResearch uncovered results that are similar to those of the DeutscheBank/CIO Magazine survey. Few respondents indicated that they expect todecrease their network equipment spending in 2004, while more companiesplan to increase their spending when compared to their outlook from oneyear before.


Increase38.9%

Not sure1.7%

Unchanged36.5%

Decrease22.9%

Increase41.8%

Not sure0.7%

Unchanged41.0%

Decrease16.5%

IT Executives' Planned Spending on Data NetworkingEquipment for Their Companies over the Next 12Months, 2002 & 2003 (as a % of respondents)



2003 2004

More27%

Less19%

About the same53%

More33%

Less20%

About the same47%

North American IT Executives' Anticipated Change inNetworking Equipment Spending, 2003 & 2004 (as a %of respondents)

Note: n=528 IT decision makersSource: Forrester Research, November 2003



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Among the key drivers for new network equipment spending in 2004, theSoftware and Information Industry Association (SIIA) found that 32% ofcompanies wanted to improve the performance of their network, while 24%said that new applications are driving further investment.

Another 24% of firms said that they would be investing in their networkto create a cost-effective, integrated system.

For more information on businesses’ telecom and network equipmentspending plans, please see eMarketer’s March 2004 Telecom Spendingspotlight report. You can receive notifications of when reports comeout at http://www.emarketer.com/products/reports/notify.php.

North American Companies' Most Important Driverfor New Network Investments, 2003 (as a % ofrespondents)

Increasing the performance of the network 32%

New applications 24%

Creating a cost-effective, integrated system 24%

Improving security of information 11%





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IT HardwareThe outlook for computer hardware spending has improved significantlyduring the past year according to data from Deutsche Bank and CIOMagazine, which found that 46.0% of IT executives plan to increase theirspending on desktop PCs, laptops, and servers in the coming year, comparedwith 39.3% of IT executives who expected to do so at the end of 2003.

According to a separate survey conducted by Forrester Research, 33% of ITprofessionals plan to increase their spending on servers in 2004, while 26%expect to leave their spending unchanged from 2003.

Increase39.3%

Not sure1.3%

Unchanged31.7%

Decrease27.7%

Increase46.0%

Not sure0.7%

Unchanged31.8%

Decrease21.5%

IT Executives' Planned Spending on ComputerHardware for Their Companies over the Next 12Months, 2002 & 2003 (as a % of respondents)




2003 2004

Less21%

About the same49%

More30%

Less22%

About the same46%

More33%

North American IT Executives' Anticipated Change inServer Hardware Spending, 2003 & 2004 (as a % ofrespondents)




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A similarly high percentage of IT executives expect to leave their PC andworkstation spending unchanged in 2004 as well, with just 24% ofrespondents to the Forrester Research survey planning to reduce theirspending and 27% of respondents planning to increase it.

2003 2004

Less27%

About the same49%

More24%

Less24%

About the same50%

More27%

North American IT Executives' Anticipated Change inSpending on PCs and Workstations, 2003 & 2004 (as a% of respondents)




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When asked by Deutsche Bank and CIO Magazine about the anticipatedtiming of a significant replacement cycle for their organization’s PCs,51.1% of the companies surveyed said that they had already completedtheir upgrades, or were currently in the process of doing so.

Another 24.3% said that they planned to initiate a replacement cyclewithin the next year.

This data is supported by Morgan Stanley’s October 2003 CIO survey, whichfound that 71% of IT professionals do not expect their company’s PCreplacement cycle to accelerate in 2004. Of the 23% of respondents who dobelieve that PC replacement will increase, 43% said that it was alreadyunderway as of October, while 29% said that it would be underway by theend of 2003.

Morgan Stanley has found that more than half of large companies’desktop and notebook PCs are less than two years old as of late 2003, whileaverage replacement cycles for each category of PC have been extended to4 years and 3.5 years, respectively.

IT Executives' Anticipated Timing of a SignificantReplacement of Their Companies’ PCs, November2003 (as a % of respondents)

Did so recently

17.6%

Are currently doing so

33.5%

Will start within next 6 months

9.2%

Will start within next 6-12 months

15.1%

No plans to do so at this time

16.9%

Have deferred plans

5.5%

Not sure

2.2%




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Spending on storage systems has a positive outlook for 2004, with 48.5%of IT professionals indicating that they will be increasing their spending,while just 14.7% of respondents plan to decrease their storage systemsspending during the coming year.

Comparative data from Forrester Research is less optimistic, however, witha narrower 34% of IT executives indicating that they plan to increase theirstorage spending in 2004.

A similarly large portion of respondents expect their spending to remainunchanged during the coming year, while 25% of respondents to theForrester study plan to spend less on storage than they did in 2003.


Decrease20.9%

Increase40.2%

Not sure2.7%

Unchanged36.2%

Decrease14.7%

Increase48.5%

Not sure2.2%

Unchanged34.6%

IT Executives' Planned Spending on Storage Systemsfor Their Companies over the Next 12 Months, 2002 &2003 (as a % of respondents)



2003 2004

More35%

Less16%

About the same49%

More34%

Less25%

About the same41%

North American IT Executives' Anticipated Change inStorage Hardware Spending, 2003 & 2004 (as a % ofrespondents)




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According to the 100 US and European CIOs that were surveyed by MerrillLynch in November 2003, growth in the volume of corporate data isdriving the demand for more storage, along the need to retrieve backupdata instantly, increased data warehousing needs, and larger file size.

IT SoftwareWhen CIOs were asked by Merrill Lynch to rank each category of softwarespending according to its anticipated change in spending during 2004,respondents listed security software as being the most likely to see anincrease in spending, while ERP software was ranked the lowest:

1. Security software2. Infrastructure software (systems management, etc.)3. Business intelligence software4. Supply chain management software5. ERP software

These results are supported by survey data from Deutsche Bank and CIOMagazine, which indicate that an overwhelming 58.0% of CIOs expect toincrease their spending on security software in 2004, up slightly from55.9% of CIOs who had already increased their security software spendingin 2003.

Very few companies planned to reduce their spending, while another35.0% of respondents said that they would leave their security softwarespending unchanged during the coming year.

With infrastructure upgrades also being consistently listed among theleading IT spending priorities among CIOs, it should come as little surprisethat very few IT executives plan to reduce their spending on infrastructuresoftware in the coming year.


Increase55.9%

Notsure0.7%

Unchanged37.1%

Decrease6.4%

Increase58.0%

Notsure1.8%

Unchanged35.0%

Decrease5.1%

IT Executives' Planned Spending on Security Softwarefor Their Companies over the Next 12 Months, 2002 &2003 (as a % of respondents)




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Methodology

WW IT Spending

North America

Europe


Latin America



Index of Charts

Indeed, Deutsche Bank and CIO Magazine found that 41.2% of ITexecutives plan to increase their infrastructure software spending in 2004,while 45.6% of respondents plan to leave their spending unchanged.

Similar results were uncovered by Forrester Research, which found that44% of IT executives plan to keep their infrastructure and integrationsoftware spending steady in 2004, while 34% of companies expect toincrease their spending.


Decrease21.6%

Increase32.6%

Notsure1.0%

Unchanged44.9%

De-crease12.0%

Increase41.2%

Notsure1.1%

Unchanged45.6%

US IT Executives' Planned Spending on InfrastructureSoftware for Their Companies over the Next 12Months, 2002 & 2003 (as a % of respondents)



2003 2004

More30%

Less17%

About the same54%

More34%

Less22%

About the same44%

North American IT Executives' Anticipated Change inInfrastructure and Integration Software Spending,2003 & 2004 (as a % of respondents)




110

IT Spending

Methodology

WW IT Spending

North America

Europe


Latin America



Index of Charts

However, when it comes to spending on e-business applications such asCRM or SCM software, Deutsche Bank and CIO Magazine found that therewere actually fewer businesses planning to increase their spending on suchsoftware in 2004, than there had been at the end of 2003.

Just 33.0% of respondents to the Deutsche Bank/CIO Magazine surveyexpect to increase their e-business applications spending in 2004, while46.9% plan to keep it steady.

Forrester Research posted similar results in its study, finding that fewercompanies planned to increase their application software spending in 2004than did in 2003, while a significant 52% of respondents expect to leavetheir application software spending unchanged.


Decrease16.9%

Increase 36.9%

Not sure4.7%

Unchanged41.5%

Decrease13.9%

Increase 33.0%

Not sure6.2%

Unchanged46.9%

IT Executives' Planned Spending on E-BusinessSoftware Applications for Their Companies over theNext 12 Months, 2002 & 2003 (as a % of respondents)



2003 2004

More 18%

Less14%

About the same51%

More35%

Less18%

About the same52%

More30%

North American IT Executives' Anticipated Change inApplication Software Licenses and DevelopmentSpending, 2003 & 2004 (as a % of respondents)




111

IT Spending

Methodology

WW IT Spending

North America

Europe


Latin America



Index of Charts

In total, AMR Research estimates that enterprise software, which includesERP, SCM, CRM, procurement and sourcing applications, accounts for anaverage 19% of overall IT budgets.

Although Merrill Lynch discovered that ERP was one of the least likelysoftware categories to see an increase in spending during 2004, AMRResearch found that ERP nonetheless continues to take up the greatestshare of the enterprise software budget, at an average 27.2% of enterpriseapplications spending.

As for those companies’ that do plan to purchase enterprise applications in2004, Forrester found that financial and business intelligence applicationswere a priority for more than one quarter of the firms it surveyed, be theyfirst-time deployments, or upgrades.

US Companies' Leading Enterprise SoftwareInitiatives, 2004 (as a % of total enterprise softwarebudgets)

Enterprise resource planning (ERP) 27.2%

Supply chain management (SCM) 16.3%

Customer management applications 16.0%

Note: n=500 IT executives from large companiesSource: AMR Research, September 2003


Application Software that North American ITExecutives Plan to Purchase in 2004 (as a % ofrespondents)

Finance applications 27%

Business intelligence 26%

Human resources 24%

CRM 24%

Supply chain planning and execution 18%

Procurement or sourcing 18%

Note: n=818 senior executivesSource: Forrester Research, December 2003



112

IT Spending

Methodology

WW IT Spending

North America

Europe


Latin America



Index of Charts

When Morgan Stanley asked CIOs if they believed that regulatory changeswould lead to an increase in their ERP spending heading into 2004, 57% of respondents said that they did not expect any impact at all, while 20%were unsure.

Of the 22% of respondents who believe that their ERP spending wouldincrease as a result of regulatory changes, 36% said that they would likelybuy new software licenses from packaged application software vendors.Another 32% said that they would spend on consulting services frompackaged application vendors, while 18% said that third party systemsintegrators or consultants would likely benefit from their increasedspending on ERP.

IT ServicesAfter a year during which several large, multi-billion dollar IT outsourcingdeals were announced – signaling a growing acceptance of IT outsourcing -35.3% of IT executives said that they plan to increase their spending onoutsourced IT services during the coming year, while a significant 39.0% ofrespondents to Deutsche Bank and CIO Magazine’s November 2003 surveysaid that they plan to leave their IT outsourcing spending unchanged in 2004.


Decrease31.3%

Increase32.3%

Unchanged32.7%

Notsure3.7%

Decrease22.4%

Increase35.3%

Unchanged39.0%

Notsure3.3%

IT Executives' Planned Spending on Outsourced ITServices for Their Companies over the Next 12Months, 2002 & 2003 (as a % of respondents)




113

IT Spending

Methodology

WW IT Spending

North America

Europe


Latin America



Index of Charts

Comparative data from Forrester Research shows that a substantial 44% ofIT executives plan to keep their IT outsourcing spending steady as well,although a narrower 25% of respondents plan to spend more on outsourcedIT services, which is down slightly from the year before.

A third comparative survey by Merrill Lynch provides a much more positiveoutlook for the outsourced IT services market, with 55% of CIOs indicatingthat they plan to increase their spending on such services in 2004.

2003 2004

More27%Less

36%

About the same37%

More25%

Less30%

About the same44%

North American IT Executives' Anticipated Change inSpending on Outside IT Services, 2003 & 2004 (as a %of respondents)



Not applicable14%

Decrease15%

No change16%

Increase55%

US and European CIOs' Anticipated Change in ITOutsourcing in 2004 (as a % of respondents)

Note: n=75 US and 25 European CIOsSource: Merrill Lynch, December 2003



114

IT Spending

Methodology

WW IT Spending

North America

Europe


Latin America



Index of Charts

Among the leading functions that CIOs said they were most interested inoutsourcing, Merrill Lynch found that applications development was thenumber one activity that US and European CIOs would like to outsource:

1. Applications development2. Help desk3. Human resources4. Call centers

On average, US-based CIOs said that 6% of their companies’ IT outsourcingwas already being done offshore as of November 2003, compared with 3% among their European counterparts. Of those CIOs that did someoffshore outsourcing, 70% of respondents said that they were satisfied withtheir experience.

According to a mid-2003 survey by Gartner Inc., IT outsourcingcontracts over the past 14 years have cost an average $47 million, with anaverage length of six years.

In total, 1,055 IT outsourcing contracts were studied, with 54% of thosecontracts having a value of $100 million or less. Mega-deals, worth $1billion or more, accounted for 9% of all contracts, but 66% of the 1,055contracts’ total value.

Altogether, the value of the 1,055 IT outsourcing contracts came to$389.2 billion.

Methodology 7

I WW IT Spending 11

II North America 29

III Europe 41


V Latin America 63



Index of Charts 115


115

IT Spending


116

IT Spending

Table of Contents 3

Methodology 7The eMarketer Difference 8



I WW IT Spending 11Worldwide IT Spending, 2001-2004 (in billions) 12

Worldwide IT Spending, 2003 & 2006 (in trillions) 12

A. Worldwide IT Spending Forecasts 12Worldwide IT Spending, by Category, 2001-2004 (in billions) 13

Worldwide IT Spending, by Category, 2002-2006 (in billions) 14

Worldwide IT Spending, 2002-2007 (in trillions) 14

Worldwide IT Spending, by Region, 2004 (in billions and as a % of total spending) 15

Worldwide IT Spending, by Region, 2004 (in billions and as a % of total spending) 16

B. Worldwide IT Spending Growth Rates 17Worldwide IT Spending Growth, 1999-2002 17

Change in Annual IT Spending Worldwide, by Category, 2002-2004 17

Change in Annual IT Spending Worldwide, 2002-2004 17

Worldwide IT Spending, by Category, 2003 (as a % increase/decrease vs. prior year) 18

Worldwide IT Spending for Select Regions, 2003 (as a % increase/decrese vs.prior year) 18

Estimated Growth in Worldwide Information and Communication Technology(ICT) Spending, 2001-2004 19

Worldwide IT Spending CAGR, by Region, 2003-2006 19

Worldwide IT Spending Growth, by Category, 2003-2006 20

Change in Annual IT Spending Worldwide, 2003-2004 20

Worldwide IT Spending Growth, 2002-2007 20

Telecommunications Spending 21

Worldwide Telecommunications Spending, by Category, 2002-2007 (in billions) 21

Worldwide Telecommunications Spending, 2002-2007 (in billions) 21

Worldwide Telecommunications Equipment Spending Growth, 2004 & 2005 22

Worldwide Telecommunications Spending, 2002-2006 (in billions) 22

IT Hardware Spending 23

Worldwide IT Hardware Spending, 2001-2004 (in billions) 23

Worldwide Computer Hardware Spending, 2002-2007 (in billions) 23

IT Software Spending 24

Worldwide Packaged Software Spending, 2001-2004 (in billions) 24


117

IT Spending

Worldwide Computer Hardware Spending, 2002-2006 (in billions) 24

Worldwide IT Software Spending, 2002-2006 (in billions) 25

Worldwide IT Software Spending, 2002-2007 (in billions) 25

IT Services Spending 26

Worldwide IT Services Spending, 2002-2007 (in billions) 26


Offshore IT Services Spending in the US, 2004 & 2007 (in billions) 27


II North America 29A. IT Spending Forecasts 30

IT Spending in North America, 1999-2006 (in billions) 30

IT Spending in North America, by Country, 2000-2006 (in billions) 31

IT Spending in the US, 2002-2007 (in billions) 32

IT Spending in North America, 2001-2004 (in billions) 32

IT Spending in Canada, 2002-2007 (in billions) 33

IT Spending in the US, by Segment, 2001-2005 (in billions) 33

IT Spending in Canada, by Category, 2003 & 2007 (in billions) 34

B. IT Spending Growth Estimates 35US IT Spending Growth, 2001-2006 35

Change in Annual IT Spending in North America, 2002-2004 35

IT Spending Growth in the US, 2002-2007 36

IT Spending Growth in the US, by Segment, 2002-2008 (compound annual growthrates) 37

IT Spending in the US, by Segment, 2001-2005 (as a % increase/decrease vs. prioryear) 37

IT Spending Growth in Canada, 2001-2006 38

IT Spending Growth in Canada, 2002-2007 38

IT Spending Growth in Canada, by Category, 2002-2007 (compound annualgrowth rate) 39

III Europe 41A. IT Spending Forecasts 42

IT Spending in Western Europe, 2001-2004 (in billions) 42

IT Spending in Europe, 1999-2006 (in billions) 42

IT Spending Western Europe, 2002-2007 (in billions) 43

IT Spending in Western Europe, by Country, 2001-2004 (in billions) 44

IT Spending in Western Europe, by Category, 2001-2004 (in billions) 44

IT Spending in Central and Eastern Europe, 2001-2004 (in billions) 45

IT Spending in Western Europe, by Technology Segment, 2002-2005 (in billions) 45

IT Spending Central and Eastern Europe, 2002-2007 (in billions) 46

IT Spending in Central and Eastern Europe, by Country, 2002 (in millions and as a% of total spending) 47


118

IT Spending

IT Services Spending in Central and Eastern Europe, by Segment, 2002 (inmillions and as a % of total IT spending) 48

IT Spending in Central and Eastern Europe,by Segment,2000-2003 (in billions) 48

B. IT Spending Growth Estimates 49Change in Annual IT Spending in Western Europe, 2002-2007 49

Change in Annual IT Spending in Western Europe, 2002-2004 49

Estimated Growth in Western European Telecommunications Spending, 2003 &2004 50

Change in Annual IT Spending in Western Europe, 2003 & 2004 50

IT Spending Growth in Central and Eastern Europe, 2002-2007 51

IT Spending Growth in Central and Eastern Europe, 2002-2004 51

IV The Asia-Pacific Region 53A. IT Spending Forecasts 54

IT Spending in the Asia-Pacific Region, 2001-2004 (in billions) 54

IT Spending in the Asia-Pacific Region, 1999-2006 (in billions) 54

IT Spending in Japan, 2002-2007 (in billions) 55

IT Spending in the Asia-Pacific Region (excluding Japan), 2002-2007 (in billions) 55

IT Spending in the Asia-Pacific Region, by Country, 2002 & 2003 (in millions) 56

IT Spending in the Asia-Pacific Region, by Country, 2002 & 2003 (in millions) 57

IT Spending in Select Countries in the Asia-Pacific Region, 2004 (in billions) 57

IT Spending on Hardware, Software and Services in the Asia-Pacific Region, 2002& 2006 (in billions) 58

IT Spending in China, by Category, 2004 (in billions) 58

IT Spending in the Asia-Pacific* Region, by Technology Segment, 2001-2003 (inmillions and year-over-year growth) 59

IT Spending in the Asia-Pacific Region, by Segment, 2001-2004 (in billions) 59

B. IT Spending Growth Estimates 60IT Spending Growth in the Asia-Pacific Region (excluding Japan), 2002-2007 60

IT Spending Growth in the Asia-Pacific Region, 2002-2004 60

CAGR for IT Spending for Select Countries in the Asia-Pacific Region, 2002-2006 61

Change in Annual IT Spending in Japan, 2002-2007 61

Leading Enterprise Solutions Spending Categories in the Asia-Pacific Region(excluding Japan), 2003-2007 (by compound annual growth rate) 62

IT Spending Growth for Select Countries in the Asia-Pacific Region, 2004 62

V Latin America 63A. IT Spending Forecasts 64

IT Spending in Latin America, 2001-2004 (in billions) 64





119

IT Spending

IT Spending Growth in Latin America, by Category, 2004 67

Change in Annual IT Spending in Latin America, 2002-2004 67

Change in Annual IT Spending in Latin America, 2002-2007 (in billions) 68

VI IT Spending by Industry 69Average IT Operating Budget, by Industry, 2003 & 2004 (as a % of companyrevenues) 70

IT Spending among Companies in North America, by Industry, 2003 (as a % ofrespondents) 72

Estimated Change in IT Spending, by Industry, 2003 & 2004 73

North American Companies’ Average Change in IT Spending, by Industry, 2003 &2004 74

North American Companies’ Anticipated Change in IT Budgets, by Industry, 2004(as a % of respondents) 75

IT Spending Prospects in North America, by Industry, 2004 (based on index scoreof 0 to 2*) 76

Industry Verticals that Large Value Added Resellers Believe Will Be the MostPromising over the Next 3 Years, 2003 (as a % of respondents) 77

North American Companies’ Anticipated Change in Application SoftwareBudgets, 2004 (as a % of respondents) 78

Number of Announced IT Outsourcing Contracts in Excess of $1 Billion, byIndustry, 1988-2003 79

Average Annual Value of IT Outsourcing Contracts, by Industry, 1988-2003 (inmillions) 79

VII IT Budgeting and Spending Surveys 81A. IT Spending in 2003 82

Global 2000 Companies’ Change in IT Spending, 2003 (as a % of respondents) 82

Large Companies’* Change in Their Annual IT Budget, 2000-2004 (as a % ofrespondents) 83

US CIOs’ Anticipated Change in IT Budget in the Next 12 Months, 2002-2003 (as a% of respondents) 84

US CIOs’ Expected Change in IT Budgets, October 2003 (as a % of respondents) 85

US CIOs’ Anticipated Growth in IT Budgets in the Next 12 Months, 2002-2003 (as a% of respondents) 85

IT Spending by the InformationWeek 500, 2000-2004 (in millions and as a % oftotal revenues) 86

Global 2000 Companies’ Average IT Spending as a Percent of Revenues, 2002 &2003 86

Average IT Budget of InformationWeek 500 Companies, 2002 & 2003 (in millionsand as a % of total IT budget) 87

Security Spending as a % of Global 2000 Companies’ IT Budgets, 2001-2003 88

US CIOs’ Breakdown of IT Spending at Their Companies, 2003 88

Leading Challenges Cited by US IT Departments, 2003 (as a % of respondents)89

Leading Technology Issues Cited by US IT Departments, 2003 (as a % ofrespondents) 90


120

IT Spending

US IT Executives’ Technology Spending Plans for the Second Half of 2003, (as a %of respondents) 90

IT Executives’ Anticipated Timing for a Recovery in Their Companies’ ITSpending, November 2003 (as a % of respondents) 91

B. IT Spending in 2004 92Annual Change in Global Companies’ IT Budgets, 1998-2004 92

IT Executives’ Estimated Change in Their Companies’ IT Budgets over the Next12 Months, November 2003 (as a % of respondents) 93

US CIOs’ Expected Change in Their Companies’ IT Budgets, 2004 (as a % ofrespondents) 94

IT Executives’ Main Reason for Their Companies’ Current or AnticipatedIncrease in IT Spending, November 2003 (as a % of respondents) 95

IT Executives’ Leading Concerns regarding Their Companies’ IT Spending overthe Next 12 Months, November 2003 (as a % of respondents) 96

C. IT Spending Priorities 97North American IT Executives’ Leading IT Initiatives for 2004, (by average index*score) 98

Leading IT Spending Priorities among US CIOs, 2004 vs. 2003 (based on relativestrength index level*) 99

New Technology Projects that North American Companies Expect to Begin OnceIT Spending Picks Up, 2003 (as a % of respondents) 100

Telecommunications and networking equipment 101

IT Executives’ Planned Spending on Telecommunications Equipment for TheirCompanies over the Next 12 Months, 2002 & 2003 (as a % of respondents) 101

New Technologies that North American Companies Plan to Begin Using orContinue to Use in 2004, 2003 (as a % of respondents) 101

North American IT Executives’ Anticipated Change in Networking EquipmentSpending, 2003 & 2004 (as a % of respondents) 102

IT Executives’ Planned Spending on Data Networking Equipment for TheirCompanies over the Next 12 Months, 2002 & 2003 (as a % of respondents) 102

North American Companies’ Most Important Driver for New NetworkInvestments, 2003 (as a % of respondents) 103

IT Hardware 104

North American IT Executives’ Anticipated Change in Server HardwareSpending, 2003 & 2004 (as a % of respondents) 104

IT Executives’ Planned Spending on Computer Hardware for Their Companiesover the Next 12 Months, 2002 & 2003 (as a % of respondents) 104

North American IT Executives’ Anticipated Change in Spending on PCs andWorkstations, 2003 & 2004 (as a % of respondents) 105

IT Executives’ Anticipated Timing for a Significant Replacement of PCs,November 2003 (as a % of respondents) 106

North American IT Executives’ Anticipated Change in Storage HardwareSpending, 2003 & 2004 (as a % of respondents) 107

IT Executives’ Planned Spending on Storage Systems for Their Companies overthe Next 12 Months, 2002 & 2003 (as a % of respondents) 107

IT Software 108


121

IT Spending

IT Executives’ Planned Spending on Security Software for Their Companies overthe Next 12 Months, 2002 & 2003 (as a % of respondents) 108

North American IT Executives’ Anticipated Change in Infrastructure andIntegration Software Spending, 2003 & 2004 (as a % of respondents) 109

US IT Executives’ Planned Spending on Infrastructure Software for TheirCompanies over the Next 12 Months, 2002 & 2003 (as a % of respondents) 109

North American IT Executives’ Anticipated Change in Application SoftwareLicenses and Development Spending, 2003 & 2004 (as a % of respondents) 110

IT Executives’ Planned Spending on E-Business Software Applications for TheirCompanies over the Next 12 Months, 2002 & 2003 (as a % of respondents) 110

Application Software that North American IT Executives Plan to Purchase in2004, (as a % of respondents) 111

US Companies’ Leading Enterprise Software Initiatives, 2004 (as a % of totalenterprise software budgets) 111

IT Services 112

IT Executives’ Planned Spending on Outsourced IT Services for Their Companiesover the Next 12 Months, 2002 & 2003 (as a % of respondents) 112

US and European CIOs’ Anticipated Change in IT Outsourcing in 2004, (as a % ofrespondents) 113

North American IT Executives’ Anticipated Change in Spending on Outside ITServices, 2003 & 2004 (as a % of respondents) 113

Index of Charts 115


122

IT Spending

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125

IT Spending

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For more information, or to order a copy, contact eMarketer at:

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