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Tech spending hits new heights

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CIOL Bureau
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Caroline Humer



NEW YORK: Spending on software and equipment jumped in the third quarter of 2003 at an annual rate of 15.4 percent from a year earlier, an increase not seen since before the technology bubble burst in 2000, according to U.S. government figures.



The software and computer equipment data seems to be a more positive statement on spending than third-quarter earnings from technology companies such as International Business Machines Corp., Microsoft Corp. and Intel Corp., analysts said.



Some analysts pointed out that GDP numbers are adjusted to account for inflation and changes in quality since 1996, which could explain some, but not all, of the discrepancy between the data and corporate reports.



Most technology companies reported only single-digit revenue growth over the previous year and their executives made cautious comments about corporate technology spending.



No executives said they saw a return to the frenzy of 2000, when corporations bought software, computers and networking equipment ahead of the turnover from 1999 to 2000 and as they moved business onto the Internet.



"That 15.4 percent rise is not being reflected in IT budgets and the revenues of IT companies," said Peter Kastner, an analyst at Aberdeen Research. "A 15 percent growth rate is just not sustainable."



He expects technology spending in 2004 to rise by 4.8 percent to 5.2 percent.



In the second quarter, spending on software and equipment on an adjusted basis grew 8.3 percent.



The increases in spending follow six straight quarters of decline in 2001 and 2002, before small improvements of a few percent in the third quarter of 2002. The last time spending rose at this rate was in the first quarter of 2000, according to the GDP figures.



The Commerce Department released the figures as part of its third-quarter report on gross domestic product, which surged at a 7.2 percent annual rate.



Like Kastner, Martin Reynolds, a technology analyst for Gartner Inc. believes the number may be revised down at some point. But Reynolds added that the government adjusts its numbers to a 1996 level to accommodate for deflation, inflation and changes in quality levels. Computer prices have fallen dramatically since 1996, while computing power has effectively doubled every 18 months.



Based on current dollars, or actual dollars spent rather than "real" dollars, which are adjusted, spending on software and equipment such as computers was about $892 billion compared with $850 billion a year earlier.



"Current dollars is the money they actually spent -- the dollars they took from their bank accounts and wrote checks for," Reynolds explained.



The difference between the current dollar and adjusted figures is large for computers and peripheral equipment -- $88.3 billion compared with $390.3 billion.



The investment in equipment and software from non- residential sources comes as the technology industry has largely been relying for growth on consumer spending.



Analysts have been hoping for signs corporations that had cut back spending as they focused on profits would begin buying new products again, providing more sustainable growth for the industry.



Reuters

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