It's almost the best of times despite what could be the beginning of the worst of times. That's the tale of two recent reports on IT spending in the U.S. These studies reveal healthy growth in IT outlays with no sign of a slowdown despite potential trouble in the larger economy. At the same time, IT spending lags behind overall corporate revenue growth, a testament to managers' skills in holding down costs. The reports also show that the long-running trend of spending a greater percentage on software than on hardware continues.

These findings are broadly applicable to the System i arena. Discussing big sales in large organizations, analyst Clay Ryder, president of the Sageza Group, says, "It's going to ebb and flow with the market."

Other System i market segments, such as those involving small buys or leased equipment, may or may not follow such trends, he adds. Some groups tend to buy infrequently and will quickly abandon or cancel an IT project if their economics turn sour. Other teams buy "utilities" and thus tend to have relatively flat spending. However, neither of these two scenarios represents a big chunk dollar-wise of the System i IT market.

One of the recent reports is from market analysis firm IDC. In a forecast of U.S. IT spending in 2007 to 2011, the report notes better-than-expected performance in the first quarter of 2007. This outcome is partly attributed to the sale of network equipment. Disk storage spending, on the other hand, has cooled. It isn't that the growth in storage has slowed. Rather, hardware price declines have kept overall spending in this area down -- a trend that IDC expects will continue.

Another ongoing scenario involves software. The IDC report predicts that total software spending will increase 9 percent this year. Stephen Minton, IDC vice president for worldwide IT markets and one of the authors of the latest report, notes that the strong software sales and declining storage revenue are indicative of a larger trend.

"Broadly speaking, there has been a long-term trend towards better profit margins in software versus hardware, hence the strategy of many IT hardware vendors to focus more on software for future growth," he says.

The second report is from IT market research firm Computer Economics. Focusing on IT spending, staffing, and technology trends, the annual study is the 18th completed by the company. In a survey of IT and business executives in private industry and government, Computer Economics also concluded that IT capital spending is shifting to software. In 2006, hardware accounted for 45 percent of capital spending, but in 2007, it declined to an average of only 39 percent. Software outlays, on the other hand, rose from 40 to 42 percent on the average during that same span.

Frank Scavo, president of Computer Economics, notes that hardware has been declining as a percentage of IT budgets for more than a decade. Thus, the trend the past few years is no surprise; however, he adds, neither hardware nor software accounts for the most spending. "The largest single line item in the IT budget is personnel," he says.

Like IDC, Computer Economics also found solid growth in IT spending, with a projected five percent increase in 2007. That compares to 4.1 percent the year before and 2.5 percent in 2005. The forecast for 2008 is for another 5 percent growth.

The Computer Economics report noted that IT operational budgets were declining as a percentage of corporate revenue. Scavo points to the fact that IT budgets were 2 percent of corporate revenue in 2006 but only 1.8 percent in 2007. Thus, although IT spending is growing, it's not growing as fast as corporate revenues.

Characterizing the decline as significant, Scavo attributes the change to a general environment of good cost-management discipline among IT executives. As a result, these leaders can support corporate revenue growth without having to expand IT budgets at the same rate.

"This is a theme not just for this year, but I would say for the last several years since the technology downturn in the early part of the decade," Scavo says.