PARIS -- MORE European chief information officers (CIOs) plan to increase their IT spending next year than plan to cut it, according to figures released Wednesday by Gartner Inc.

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While Gartner predicts total European IT spending will grow faster next year than this, the biggest change should be in the way companies spend this money, according to Peter Sondergaard, head of European research for Gartner.

Going forward, companies must focus on cost optimization, not cost cutting, he said.

"In the last year and a half, they had these knee-jerk reactions to cost-cutting, with no reference to optimization, to whether they were eliminating the cost that delivered the least business value," he said.

If you think you've heard the spend smarter rhetoric before, you're right -- but this time, it's serious.

"People talked about this three years ago, but then there was money in abundance," Sondergaard said. "It's a completely new environment now."

Around one in three of the CIOs of medium-size and large European companies questioned by Gartner plan to increase their IT spending by more than 3 percent in 2003, while around one in five plan to cut spending by at least 3 percent in 2003. One in ten expect to spend more than 10 percent more next year, and about one in eleven expect to cut spending by more than 10 percent, according to figures supplied by the company.

"One of the positive impacts during the e-business bubble was that CIOs became members of the board," Sondergaard said, adding that while CIOs' spending estimates might have been over-optimistic heading into the economic downturn, their higher status within the company today gives them a much clearer view of spending needs.

Gartner questioned the 1,500 CIO members of its European Executive Program, EXP, and compiled the figures from a statistically representative group of 336 respondents, Sondergaard said. The full report on the survey is only available to participants, he said.

The most optimistic CIOs are to be found in Italy, with 46 percent of respondents there planning to increase spending in 2003 by more than 3 percent, followed by the U.K. and Ireland (37.7 percent). CIOs in Belgium, Luxembourg and the Netherlands took their optimism to extremes, with 19.2 percent planning an increase of more than 10 percent in IT spending next year, according to Gartner figures.

Another Gartner study, compiled by its Dataquest Inc. unit, forecasts overall IT spending in Europe will increase by 5.4 percent next year, compared to 1.7 percent this year. Growth will be strongest in software (6.4 percent) and services (7.1 percent), with no growth expected in hardware sales.

The slow-down in hardware spending across Europe, with growth in other areas, is a symptom of the trend towards cost optimization rather than cost-cutting, according to Sondergaard.

Optimization, for a company, may mean outsourcing some processes -- which moves the hardware spending to service providers, who then run the process as a service or as hosted software. These service providers are able to offer keen prices because they can reuse or group together infrastructure for more than one client, and so need to buy less -- hence the static hardware sales Gartner forecasts.

"In 2003, the replacement cycle may see software replace hardware," he said.

Sondergaard foresees an increase in spending on middleware.

"There's a tremendous focus on improving your enterprise architecture, and vendors that operate in the middleware space up to the border of the packaged application layer will do relatively well," he said.

CIOs will likely have fewer suppliers to choose from in the middleware-to-application layer market, although they will offer a broader range of products, Sondergaard predicted.

"Starting 2004, you will see significant consolidation with vendors wanting to consolidate everything from the operating system up to what is included in the functionality of R3," SAP AG's enterprise resource planning package, he said.

While hardware, services and telecommunication markets have all been unsettled of late, little has happened in the software market, Sondergaard said. "It's the still before the storm."

He didn't venture an opinion on when the storm would break, but said the signs were already there in events such as Microsoft Corp.'s purchase of Navision A/S.

"Why would Microsoft buy Navision when it already has Great Plains? It's because it wants to be a global player, interfering with the applications layer when it's really only an infrastructure player," he said.