Spending on application software — such as ERP and call center apps — tops the 2004 buying list for IT execs in Germany, France, the Netherlands, and the UK. But according to a new report by Forrester Research B.V. (Nasdaq: FORR), most hardware categories face a sluggish year, and system integrators will have a hard time selling engagements to thrifty firms.

To uncover the most robust insight into the likely 2004 investment intentions of IT decision-makers in European user companies, Forrester conducted a survey of 490 execs located in France, Germany, the Netherlands, and the UK.

“In 2004, IT spending will grow at a healthy rate in France and the UK but will remain flat — or even go negative — in Germany and the Netherlands,” said Forrester Senior Analyst Charles Homs. “ERP, content management, and Web services will benefit from higher spending, but the outsourcing boom spells trouble for IT consulting.

“The UK is Europe’s fastest-growing market for IT spending, with 6.5 percent growth in 2003 and a planned 6.2 percent in 2004. This will accelerate the IT outsourcing boom and enable large firms to make investments in new projects, without lifting the grey clouds hovering over consultants and systems integrators. French firms plan to buy ERP and supply chain apps. Expectations of 3.6 percent growth in 2004 feed into 62 percent of French firms increasing their spending on application software — the highest increase of any technology category. ERP vendors and supply chain apps vendors will benefit most from this increase: 48 percent of French firms will upgrade or pilot ERP software, and 44 percent will do the same with supply chain apps.”

Forrester’s survey found that negative growth will continue to dog the German market. IT spending contracted 4 percent in 2003, and a 1 percent reduction looks likely in 2004. To cut costs, all sizes of firms — from those with 500 employees to those with more than 5,000 employees — expect to spend more on outsourcing, but less on consultants and integrators. And in the Netherlands, large firms will drag down IT spend. Despite positive signs of IT investment from firms with fewer than 5,000 employees, larger Dutch firms will drag IT spending growth in 2004 down to a minute 0.3 percent. But this won’t stop IT directors from testing out emerging technologies like Web services, Linux, and wireless LANs.

“Overall, the IT execs we surveyed plan to increase their total IT spending by 2.6 percent in 2004 — compared with the meager increase of 0.8 percent they identified in 2003. Our survey highlights a 2.9 percent increase in 2005,” Homs added. “Sixty percent of respondents indicate that they will stabilize or reduce their spending on both servers and PCs. In contrast, 48 percent of respondents plan to increase spending on storage hardware in 2004; networking hardware also looks strong, with 37 percent pointing to growth.

“Driven by renewed corporate governance requirements as well as international financial reporting standards (IFRS), a third of all respondents indicate they will update their ERP apps or initiate a new rollout. Content management software will also benefit from increased demand in 2004. However, failed or underperforming projects trouble 36 percent of IT decision-makers, providing ample opportunity for services automation vendors to engineer successful change. Incompatible systems and unused applications also perplex Europe’s IT decision-makers — but surprisingly, not unused software licenses nor underutilized hardware.”

For the report “Western Europe’s IT Outlook For 2004: Business Technographics® Data Overview,” Forrester conducted a survey of 490 European IT decision-makers located in France, Germany, the Netherlands, and the UK. Forrester weighted the data first on the average revenues of each firm relative to the number of employees and secondly on the GDP of each country. We included only responses from firms with more than 500 employees in the survey data. Forrester fielded the online survey from July to September.