IDC: Slow growth in 2005 means lower prices

With the annual prediction season in full swing, research firm IDC laid out its prognostications last week, including single-digit growth in IT spending that, whilst low enough to look flat, hides what will shape up to be bumpy year for vendors.

IDC's Frank Gens, the firm's vice president of research, presented some 50 predictions culled from discussions among more than 700 of the company's analysts.

"It's clear that 2005 will be an interesting and challenging time," said Gens. "And we have predicted inflation, no doubt about that." This year's prophecies greatly outnumber those made last year, for 2004.

Prime among IDC's forecasts is its bet that IT spending will grow at a modest 6.1 percent through 2005.

The low rate of growth is predicated on a slightly cooler world economy, continued high oil prices, and a modest rise in the growth in US IT spending. But if IDC's prediction pans out, 2005 will be a better year than was 2004, which the research firm is now saying will end up with a growth rate of around five percent.

"But while [2005's] is an almost boringly moderate growth rate, it will mask what I see as a very turbulent year," said Gens.

For instance, the combination of a low growth rate and intense competition will keep pressure on vendors to continue pushing prices down, predicted Gens. In blade servers, for instance, he said to expect that "the re-entry by Dell will force pricing down and put pressure on the overall server market."

Likewise, enterprises should see storage costs fall even more in 2005, thanks to a continuing commoditisation and lower priced, high capacity drives making it to market.

In 2005, for instance, 20 percent of the total terabytes of storage capacity will be made up of low cost arrays that, while accounting for a large slice of units shipped, will make up only 11 percent of storage revenues.

"Numbers like that foreshadow continued price erosion in the storage market," said Gens.

In other areas, such as the US$100 billion application market, the long range low growth (IDC is predicting that single-digit growth in IT spending will run through at least 2008) will push vendors to shift from touting the next "killer app" to, instead, own the next "kill-app platform." That will pit application developers, such as SAP and Oracle, against middleware developers, such as IBM, more frequently, as they skirmish over app-development platforms.

"Microsoft, with a foot in each camp, and after failing to close a merger with SAP in 2004," said Gens, "is likely to attempt an audacious buy of some sort in 2005 to strengthen its hand in this critical battle."

Another IDC prediction lies in the research firm's take on the battle over the desktop that some see coming between Microsoft and, say, Google, which could start with search but expand beyond that.

"Skirmishes between Microsoft and Google - as well as Adobe - for the hearts and minds of users will heat up in 2005," promised Gens. "But the decisive battles won't be fought next year; more likely in 2006."