Confidence in the business climate is resulting in bigger IT budgets for 2005, especially for hardware spending,
which is driven by the spread of Linux and open source software.
A recent survey of 195 North American chief information officers (CIOs) predicts that spending on IT goods, services and staff will grow 7% next year and continue at a similar pace through 2008. Conducted by Forrester Research Inc. of Cambridge, Mass., the report shows that IT budgets will increase at a similar rate of 6.4%.
Overall, IT optimism is up quarter over quarter, as a majority of the CIOs said they believed the climate in their industry was very strong, said analyst Tom Pohlmann.
Economic optimism is expected to carry over to next year, Pohlmann said, with 71% of respondents expecting even better performance three business quarters from now.
In his report, Pohlmann said "the spread of Linux and other open source software, and the growing adoption of blade servers will drive near-term growth."
Taking Linux in stride
Pohlmann said computer hardware spending will "hit its stride" with 9% growth, and a three-year depreciation model shows the growth in computer hardware expenses will peak in 2005 at 14% and then level off.
"Our data shows Linux is not at the top of people's minds, but it is still growing … once a company is actively adopting [Linux], they are more likely to use [open source] going forward," Pohlmann said.
In the server business, Pohlmann said, the idea of open source is still "hit or miss" in the mind of a CIO.
Companies are using Linux because of the clear cost savings associated with the OS, Pohlmann said, and those who are cautious or reluctant to adopt may be waiting for better support and services.
"[Some] may not quite be believers in those cost savings, because it will add a new flavor of OS to their already busy data centers," he said.
Other potential factors range from interoperability with existing applications to the relative scarcity of trained Linux support personnel. This creates a paradox where CIOs praise the OS as "easy to use," while at the same time criticizing it for the additional cost of Linux administrators.
However, CIOs are likely to be listening when the cheaper hardware is running Linux and all of the company's file and print serving and Web servers.
A recent report from Gartner Inc., of Stamford, Conn., mirrored much of Forrester's findings. It said Linux is moving deeper into enterprise infrastructure, including high performance clusters, blade servers and Web applications. According to that report, Linux revenue grew more than 56% in Q2 2004.
More confidence, more spending
With 39% of CIOs spending above their budgeted run rate on IT -- up from 34 % in Q3 2004 -- network and software spending are also set to grow at modest rates into 2005.
Network equipment spending should grow an average of 4%, and Pohlmann said software spending will recover with 7% growth. Growth for 2005 is expected to be 3%, but Forrester predicts that the numbers will pick up in 2006, behind applications based on service-oriented architectures and Web services as they become more mainstream.