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IDC: Worst Year Ever For IT Industry

This has been the worst year in the history of IT, according to a new report released by the Framingham, Mass.-based analyst firm International Data Corp.

The IT industry suffered its largest decline ever in 2002, actually showing a negative growth rate of 2.3%. The dramatic fall was spurred by declines in the worldwide systems market, which includes PCs, servers and workstations; the storage market; the network equipment market, and the services market.

But despite this year's poor financial performance, IDC analysts are predicting that the industry will regain some steam in 2003. But they warn that no one should expect a dramatic rebound yet.

"Overall, the IT industry has contracted by roughly 3% over the past two years," said John Gantz, chief research officer at IDC, during a global teleconference. "This is in sharp contrast to the average annual growth rate of 12% enjoyed by the industry over the past 20 years. Looking forward to 2003, we expect to see spending on IT and communications resume, driving a worldwide growth rate of 5.8% for the industry."

Each of the separate markets that showed a decline this year were victims of major drops in earnings. According to IDC, the systems market declined by 9.3%; the storage market dropped by 10.6%; the network equipment market shrank by 7.6%, and the services market, which represents more than one-third of total worldwide IT revenues, also was hit as the average contract value fell to a three-year low, though IDC did not release specific numbers.

The services sector will be slow to heal, according to IDC predictions. Analysts say services growth in the coming year will be restricted by smaller projects. Hardware may also have a hard time bouncing back due to price competition and software spending is predicted to remain weak, as well.

On the brighter side, IDC analysts are expecting IT spending in the U.S. to grow 4.4% next year, with demand for servers, security and network equipment leading the way. Storage and software are predicted to expect renewed growth by in 2005.

"Although the industry as a whole won't return to the kind of growth enjoyed before the downturn, there will be a number of bright spots over the next several years," says Stephen Minton, director of worldwide IT markets and strategies. "Innovation and value will be important drivers that lead the industry back to health."

However, all these numbers are liable to change if there are major changes in the economy or if the U.S. goes to war with Iraq, analysts caution. Because of these potential factors, IDC also came out with a "downside forecast." In that scenario, IDC predicts that worldwide IT spending growth would be closer to 2%, as opposed to the 5.8% predicted in the better scenario.

Editor's note: This story first appeared on itmanagement, a Jupitermedia site.