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IT Spending: Think Small

Will IT spending ever again reach the double-digit growth rates of the late 1990s? That question has to be on industry observers' minds as they watch big infrastructure companies – first Motorola Inc. (NYSE: MOT), then Nortel Networks Ltd. , then Alcatel-Lucent (NYSE: ALU) – announce big layoffs. Sometimes it seems as if the trough into which IT budgets fell in 2001 is endless.

According to Forrester Research Inc. , IT spending has essentially tracked with U.S. GDP growth since the tech bubble crashed in 2001, averaging about 7 percent a year. That's respectable but nothing like the go-go years of the 90s, when growth rates routinely topped 20 percent. Unfortunately, the research firm sees growth slowing to less than 3 percent in 2007 as the U.S. economy cools due to a varied set of factors. But Forrester sees IT spending rebounding to double-digit levels as the decade draws to a close.

Many analysts talk about technology cycles alternating between periods of rapid growth and innovation and periods of more gradual adoption and "digestion." Right now, following the banquet years of 1998-2001, we are nearing the end of the digestion phase. [Ed. note: We won't carry that metaphor any further.] Fueled by new and upcoming innovations in mobile and wireless, voice-over-IP, and server virtualization, the year 2008 will usher in a new burst of growth marked by rising levels of IT spending.

It may be, however, that the Big-Iron vendors are looking for growth in the wrong places. New York-based research firm Access Markets International (AMI) Partners Inc. recently released a report that focused on growth in IT spending by small and medium-sized businesses (SMBs).

Worldwide IT spending by SMBs will grow by 10 percent this year, AMI forecasts, led by double-digit gains in the "Big Four" emerging markets (Brazil, Russia, India, and China) but pushed along by encouraging growth in the "Next 10," which includes countries in Southeast Asia, South Asia, and Latin America. Collectively, SMB IT spending in these 10 emerging markets will grow by more than 20 percent in 2007.

Here's something I'll bet you didn't know: IT spending by SMBs in Indonesia will equal that of Sweden this year – and surpass it in 2008.

Finally, 2007 will be a watershed year in the United States and Japan: In those two huge markets, IT spending by smaller companies will surpass that of big corporations for the first time. This transition has already occurred in other developed countries in Europe and Asia.

So, if you're a salesperson at, say Alcatel-Lucent, and you're looking to preserve your job, it's time to quit hanging out with your contacts at GM and start beating the SMB bushes.

— Richard Martin, Senior Editor, Unstrung

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