Through interviews with 200 IT decision-makers in  enterprises in Western Europe and the US, Datamonitors report, the first of a series to come from Datamonitors Technology Trends* service, provides insight into the evolution of enterprise IT budgets in Western Europe and North America. The report highlights areas of positive and negative growth in IT spending, and analyses the reasons behind these trends.
 

The overall trend from the survey is that IT budgets have increased in 2006, with enterprises forecasts suggesting slight increases to IT budgets in 2007. 43% of the surveyed enterprises state that they see their IT budget increasing in 2007, compared to the 32% whose budget increased from 2005 to 2006. Encouragingly for vendors, the percentage of enterprises that see their IT budget decrease is likely to reduce, from 21% in 2006 to 17% in 2007. The net effect of current and forecast budget changes is therefore positive.
 

In comparison to enterprises in European markets, a higher percentage of US enterprises have seen their IT budget increase in 2006 (64% in total). US enterprises are also the most optimistic when it comes to anticipated IT budget changes in 2007, with 72% expecting to increase their IT spending next year. Stable economic figures (GDP growth was 3,3% in 2005) coupled with an open-minded approach towards new technologies, is translating well into increased IT spending.
 
According to Datamonitor, the fact that economic growth is weaker in the European markets surveyed (GDP growth averaged 1,9% in 2005 across the UK, France, Germany, Italy, Spain, Benelux and the Nordics) is clearly influencing enterprises IT expenditure.

A weaker economic environment causes uncertainty, can potentially delay investments in IT, and makes enterprises more hesitant to adopt the latest technologies, says Tim Gower, lead analyst within Datamonitors Technology Trends Service, and author of the report. However, with stronger economic growth forecast in 2006, this is likely to reduce the degree of caution in IT budget setting in Western Europe, making the enterprise environment marginally less challenging for technology vendors.
 
 
Datamonitors survey findings also indicate that spending on hardware (34%) and software (29%) dominates IT managers budgets. Although IT departments clearly allocate proportions of their budgets to IT services, communications and consulting, these areas are significantly smaller in comparison. Despite enterprise IT spending relating to the broad area of services attracting significant attention, the reality is that the majority of enterprises external IT spending still remains product focused.
 
 
Projected increases to IT budgets in 2007 mask some interesting differences in expenditure by type of investment. Enterprises plan to increase their spending on software (2,4%) and services (1,7%) most markedly, with communications and consulting services likely to generate slightly above average growth (both 1,2%). Hardware spending, on the other hand, is forecast to decline very marginally (-0,2%).

Hardware-based technology solutions tend to be fully established within enterprises and the technology is mature and proven. With many hardware products facing downward price commoditisation, enterprises are aware that their replacement initiatives can be met at lower price points than previously.