Spending on information technology (IT) will recover next year, led by increases in services and software, analysts say. The Yankee Group forecasts spending on software will grow by 4.4 per cent, while money spent on services will increase by 3.2 per cent and on hardware by 2.9 per cent. 'Growth will return in 2002. The recovery in spending will occur because there is a very tight alignment between supply and demand for technology, and spending cannot be delayed because, for the most part, IT is consumed when needed, with no buffer inventories,' said analyst Andy Efstathiou in a report. The group expected this year to end with a decline of 1.1 per cent in spending, the first time since 1954. Spending on hardware would be most severely hit with a 1.5 per cent decline. Software would decline 1.1 per cent and services 0.7 per cent. 'Software has experienced greater demand than any other IT segment during the past 10 years. In parts of the IT market, such as software, new firms have entered the market even faster than industry revenues have grown,' Mr Efstathiou said. He believed IT spending would concentrate on reducing environment complexity, application integration and controlling costs with increasing efficiency. 'Spending in these areas will be huge because they drive value for users. Users are spending here to drive efficiency higher through consolidating infrastructure, using simpler programming languages and application servers, and employing IT to drive sales, such as CRM [customer relation management] and e-commerce,' he said. The group forecast that the market for application-integration licence revenue would face an increase by more than 400 per cent to US$5.41 billion in 2004. Total external IT spending in the United States would increase from about US$400 million this year to US$470 million in 2003. Meanwhile, research firm International Data Corp (IDC) expects Asia to have growth in both the IT services and software markets, but the hardware decline would continue. 'Normally, hardware is the biggest proportion of most IT budgets,' said Robin Giang, IDC's research manager at IT solutions. 'But with fierce competition and the rapid pace with which new equipment is pumped into the market, price erosion is inevitable. Thus, we are seeing more and more hardware vendors looking to services as a new and more lucrative stream of revenue.' He expected the Asia-Pacific IT market to have year-on-year growth of 22 per cent from last year to next.