By John Roberts, CRN

New York, NY (January 05, 2004) - As the economy moves from recovery to sustained growth, the year ahead could shape up to be the best one for the channel since the peak of the technology spending

After accelerating dramatically in the second half of last year, U.S. economic growth should settle into a solid and sustainable late of about 4 percent, adjusted for inflation, the Federal Reserve Bank of Philadelphia forecasts. If realized, that would be the fastest economic growth rate in the past five years.

The brighter economic outlook should translate into a modest increase in technology spending by U.S. businesses and government entities this year. Forrester Research sees technology spending rising 4 percent in 2004, reaching $743 billion.

Growth rates are likely to vary significantly depending on specific technologies and vertical markets. Spending growth will be above aver- age in areas such as retail, insurance and health care, according to Forrester Research, while raw-material producers and chemicals and petroleum industries are likely to lag-

"Wholesale distribution will be big [in 2004] as companies look to tie different locations together and link the front office to the back office with end-to-end solutions," says Alex Solomon, co-president of Net@Work, a solution provider in New York.

For solution providers, a return to steady economic growth and higher technology spending means focusing more on profit-generating, rather than profit-protecting, solutions for their 'business customers.

While cost control and return on investment will remain important, businesses will look to technological innovations to drive sales higher in a favorable economic environment, according to research firm Gartner.

Security will continue to offer strong sales opportunities for the channel. Antispam solutions, in particular, will offer fertile ground for solution providers. Unwanted e-mails are already costing businesses worldwide an estimated $20 billion a year, with no letup in sight, according to the Radicati Group, a market-research firm.

Solution providers are also planning to invest time and money this year in categories such as networking, storage and PC hardware, according to CRN research data. Technologies such as wireless networking, IP telephony and Web services are likely to come into their own, and Linux should continue its steady progress into the business market.

"This could be the year that Microsoft really feels the pinch from Linux," says Anthony Awtrey, vice president at I.D.E.A.L. Technology, Orlando, Fla. "The idea of taking a baseline of open-source software and adding on to it the way you want is really taking off. Solution providers are making money by creating features that their clients can hang

Small and midsize companies should lead the way to higher spending. Small-business optimism about the future of the economy has reached near-record levels, according to the National Federation of Independent.

But even the long-dormant enterprise sector should shake off the doldrums this year. A survey by the Business Roundtable, an association of CEOs from leading corporations, shows that the percentage of enterprise firms that expect to increase capital spending (23 percent) has reached its highest level in more than a year.

Outsourcing of technology jobs abroad will be a hot-button issue this election year. The offshore component of U.S. technology services spending is forecast to reach 23 percent of total spending by 2007, more than double the current figure of 10 percent, according to research firm IDC. As more and more U.S. technology jobs move overseas, solution providers could take a hit to their bottom lines.

"GE used to be a significant source of help-desk service revenue for us, but then they decided to outsource the work to India," says Pete Busam, vice president and COO of Decisive Business Systems, Pennsauken, NJ. "At the peak we had 20 people working on that account, and now we have none."