This is part of IEEE Spectrum's special report: What's Wrong—What's Next: 2003 Technology Forecast & Review.
For corporations the world over, the tech bubble of the late 1990s was an orgy of excess, which, like all parties that go on too long and involve far too much consumption, ended in a brutal hangover. Information technology (IT) departments simply bought too many servers, storage devices, and PCs in preparation for Y2K, the introduction of the euro, and an e-commerce bonanza that, like an absinthe-induced hallucination, seemed very real at the time, but vanished following the dot-com crash.
The numbers are sobering. After declining in 2001 following a decade of double-digit growth, worldwide IT spending will gain an anemic 3.4 percent in 2002 over 2001, with revenue totaling US $2.3 trillion, according to Dataquest Inc., a unit of Gartner Inc. (Stamford, Conn.).
Companies still are digesting hardware bought during the TECH BUBBLE
REPLACEMENT of obsolete hardware is being DELAYED until the economy picks up
IT departments find it hard to cope with the COMPLEXITY OF SYSTEMS already in place
Software that will help companies manage IT RESOURCES more cost-effectively
CONSOLIDATED, integrated systems that give users access to computing and storage power ON DEMAND
Faster INTERCONNECTS to transfer data among computer and storage resources
To Gartner, the IT sector encompasses hardware, software, and services as well as telecommunications equipment and services [for more on this topic, see pp. 26-38]. While spending on software and services has risen over the last couple of years, hardware spending has lagged far behind, declining 13.8 percent in 2001 and 1.3 percent in 2002. With hardware spending off and profit margins on hardware perpetually shrinking, companies like Hewlett-Packard, Sun Microsystems, and EMC Corp. are following IBM Corp. to where the biggest growth opportunities lie: in software and services that help companies consolidate and manage their existing systems.
For some hardware segments, like workstations and PCs, the problem is clearly a consequence of Moore's Law—falling prices [see "Tackling the Chip Glut." Unit shipments of workstations remained steady at around 1 456 000 in both 2001 and 2002 and are projected to rise in 2003 to 1 486 000, but revenues are falling from $6.4 billion in 2001 to a projected $5.1 billion in 2003. Unit shipments of desktop PCs also languished. They barely increased in 2002 from 2001 (the first year since 1985 that sales shrank), but look poised to rise from 98 million to 107 million units, or 8.6 percent, in 2003, thanks to strength in Asia. Revenues will be up, too, though just barely—3.1 percent, according to Gartner's projections.
Overall, the IT market is maturing its way to sustainable, albeit unspectacular, growth. The hockey stick growth curves of the 1990s just aren't feasible over the long term. In equipment-saturated markets like the United States and Europe, replacement demand is all hardware vendors can hang their hopes on for 2003, says Axel Pols, manager of market research for Bitkom eV (Berlin, Germany), a technology research firm.
New growth opportunity lies with software that helps companies manage the systems they have now. With a consolidated system in hand, they can do more than replace—they can move up to more powerful storage and servers.
Maintenance is a high priority. "The No. 1 problem today is the complexity of the systems we put in," says Tony Scott, chief technology officer of General Motors Corp. (GM, Detroit, Mich.). "When a system fails, it's usually because we failed to understand how the various pieces fit together and what effect a change in one part of the system will have on another."
Perhaps surprisingly, maintaining existing equipment sops up 75 percent of IT budgets, according to Zeus Kerravala, vice president of enterprise infrastructure for Yankee Group, the market research firm in Boston. Sales of new equipment in effect depend on chief information officers' ability to save money elsewhere. It can be done if companies consolidate IT assets to make them cheaper to operate. Otherwise, money spent to "keep the lights on" will keep rising to the point where IT budgets go entirely to support the current infrastructure.
But while companies squeeze every last drop of life from their servers, PCs, and workstations, hoping to stave off the replacement cycle for another few months, they still have an insatiable appetite for storage, right?