IT in 2007: A Look Ahead

Get set for some surprises. With 12 more months of moderate expansion expected in the global IT arena, vendors will have to get creative in 2007 to maintain the kind of growth investors want.

“You will see major vendors performing unnatural acts,” quipped Frank Gens, senior vice president of research at IDC.

On balance, IT investor confidence in 2006 remained high, though growth in the IT market overall has been modest. The Nasdaq, home to many IT heavyweights, declined this week following some disappointing reports on the U.S. economy. But there would have to be a crash before the new year for markets to sink to where they were at the beginning of 2006.

Tech companies, however, are under pressure. Worldwide IT spending will increase by 6.6 percent in 2007, according to IDC. This is slightly better than the 2006 increase of 6.3 percent, but nowhere near the double-digit levels of the dot-com boom.

The small and midsize business (SMB) sector is key not only in Europe and the United States, but also in emerging markets, analysts agree. Software as a service (SaaS) is crucial to reaching users in this market, since it lowers the cost of entry to business applications.

SAP may surprise skeptics and make a bigger splash in SaaS for SMBs than rivals Oracle and Microsoft, according to Gens. SAP has scaled down its offerings with the Business One package and has started to offer hosted business applications, Gens noted.

Salesforce.com, an SaaS leader, will be an acquisition target. Another surprise: Gens predicts Google—or one of Google’s Internet competitors—is a likely buyer. Google needs Web-based applications to maintain growth. With Saleforce’s AppExchange, Google will have its online software marketplace in one fell swoop.

The mergers and acquisitions scene is likely to be as hot in 2007 as it was in 2006, which is expected to close with more M&A deals than any year yet. M&A activity is a response to a variety of factors, such as rising competition of Asian vendors, and the need for vendors to make bold moves.

Virtualization may provide M&A prospects, as vendors vie to meet users needs to make data centers more efficient. EMC is the leader in this area, with Hewlett-Packard, Cisco Systems and IBM hot on its heels. Following Microsoft’s acquisition of Softricity to build up capabilities in this market, look for Ardence and SWSoft as targets, according to the Butler Group.

In hardware, U.S. PC sales showed virtually no growth in the third quarter. However, thanks to strong sales in emerging markets, IDC expects global PC shipments to rise 11.3 percent to 255.4 million units in 2007. HP, which overtook Dell this year as the world’s biggest PC supplier, could be in a position to maintain its leadership. It can use its expertise in the enterprise arena to bear on the consumer market, Gens noted.

HP was one of the top surprises in IT this year: Despite its initial struggles to absorb Compaq, it ends the year beating out IBM as the world’s biggest IT company. In turbulent times, maybe the biggest surprise of all will be for HP—or any company—to maintain a leadership position.

— Marc Ferranti, IDG News Service (New York Bureau)

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