EARTH SCIENCES

STAMFORD, CT -- As companies become much more conservative in their buying decision for software products, the software industry is entering a period of consolidation that is likely to extend into 2003, according to Dataquest Inc., a unit of Gartner, Inc. (NYSE: IT and ITB). Over the past three years, more than 25 percent of leading software companies have become the subject of merger, acquisition and divestiture (MAD). Over the next three years, Gartner Dataquest analysts expect this pace to reach 50 percent. "In many cases, strong brand names will survive under a new owner where the equity justifies it," said Joanne Correia, vice president for Gartner Dataquest's Software Industry Research group. "The demise of software vendors will also become more commonplace as the assets left by some failing companies don't attract a new owner, however cheap they are to acquire. Vendors should be actively seeking MAD opportunities while they still have substantial residual or purchasing value." Buyer behavior will continue to stay cautious and more focused on the bottom line for the foreseeable future. Gartner Dataquest analysts said annual growth for the worldwide software license market will be flat in 2001, recovering to 4 percent growth in 2002 and 8 percent in 2003. The worldwide application software license market is projected to have declined 6 percent, to decline 1 percent in 2002, and then the market will grow 8 percent in 2003. The worldwide infrastructure software license industry is forecast to drop 3 percent in 2001, but recover with 6 percent growth in 2002 and an 8 percent increase in 2003. Most segments of the software industry will experience declines in 2001 and 2002, but the security software segment will continue to grow, although at a slower pace then in 2000. In 2000, worldwide security software revenue grew 25 percent. In 2001, the industry is projected to grow 12 percent, followed by 18 percent growth in 2002, and a 16 percent increase in 2003. "The events of Sept. 11 have and will continue to drive growth in the security software market, despite a tough economic environment," said Colleen Graham, industry analyst for Gartner Dataquest's Software Industry Research group. "While enterprises struggle to adjust to a shaken U.S. economy, companies that are tightening their budgets and re-prioritizing technology products will move security initiatives from the IT wish list to the list of IT must-haves." Additional information is available in the Gartner research Spotlight titled "Gartner Predicts 2002: Software." This Spotlight analyzes the impact of the worsening business confidence in 2001 and summarizes Gartner's predictions for 2002 through 2003 in the worldwide software market. The Spotlight can be found in the Software Focus Area on Gartner's Web site at www.gartner.com/1_researchanalysis/focus/swmkt_fa.html.