Interview: Gartner sees global IT spending growth of 2.5 percent

TEL AVIV (Reuters) - Companies are expected to boost spending on information technology by 2.5 percent this year and a similar amount in 2006, extending the recovery that started over two years ago, tech consulting firm Gartner said on Tuesday.

The growth this year would take spending up to about US$2.6 trillion, with nearly half on telecoms services and the rest on IT hardware and software and IT services.

Peter Sondergaard, head of research for Gartner, said the United States would see 3.5 percent growth, while in Europe and Asia it would be slightly below 2 percent, in dollar terms.

"We see a slight increase in spending on software, slightly stronger growth on outsourced services and a status quo in telecoms," Sondergaard said in an interview with Reuters at a Gartner conference in Tel Aviv.

He said hot areas in IT were wherever technology platforms can be shared with multiple applications, thereby eliminating the need for buying extra servers, security-based software and data analysing technologies.

This would give a more immediate return on investment, a change from the tech boom in the 1990s when returns were secondary to the hype of the actual technology, Sondergaard said. "People are much more pragmatic today."

He expects consolidation in the software sector in the near future, with only small niche companies and giant ones that have a large selection of products able to survive.

"You will rarely survive if you are medium-sized in software," he said.

Telecoms spending was particularly strong for Voice over Internet Protocol (VoIP) technology. The challenge for telecoms companies is to grow while fixed-line revenues are shrinking, he said, adding that telecoms providers would only be able to compete on value-added services.

Sondergaard is also upbeat on Israel's technology sector, which is viewed as a kind of Silicon Valley but has met competition from India and China in recent years.

"The threat to Israel from China is potentially a larger threat because India has little focus on integration of hardware and software," he said. "It is good to keep everyone on their toes but (the demise of Israeli technology) is exaggerated."

Israel, he said, has rebounded well from the downturn of the early 2000s to identify areas that will immediately benefit companies' needs.

"Israel has established itself as a centre of expertise...in areas of networking security and in wireless technologies," he said.