Companies are moving out of cost-cutting mode and resuming larger-scale investment in information technology, helping the sector grow again this year, industry officials and analysts believe.
"The IT and telecoms sector is looking good again. We expect growth in western Europe of more than four per cent," Willi Berchthold, president of German industry association Bitkom, said at CeBIT, the world's top technology and telecoms fair in Hanover, Germany.
"The growth driver is the increased willingness of companies to invest, particularly of small and medium-sized firms," he said.
Steve Prentice, chief of research at market research firm Gartner, also said: "The general spending will creep up. We expect about a 2.5 per cent increase in IT spending this year. Organisations are moving out of cost cutting toward investing."
But Mr Prentice warned that the software industry in particular was in the midst of a painful transition from selling licences to providing software as a service.
"The traditional licence model for software is broken, and it will become even more broken in the next several years," he added.
"It will be very traumatic, and it will cause significant financial difficulties for many organisations," he said.
Users are increasingly pushing hardware and software vendors for a model where they pay for actual use, renting software and hardware instead of buying it.
"Who wants to buy a program when all you care about is the outcome? You buy the process, not the software," Mr Prentice said.
"Increasingly, we are moving in hardware as well as software away from capital cost to ongoing, recurring operational cost across the lifetime."
This could generate more revenue for vendors but also potentially make earnings more volatile because users would find it easier to switch providers, Mr Prentice said.
CeBIT this year featured some 6,000 exhibitors, firms ranging from software makers to telecoms operators.
They included Microsoft, South Korean electronics group Samsung and chip maker Intel - who finally unveiled a new mini-laptop computer which had generated months of speculation under the code name "Origami".
The Ultra Mobile PC (UMPC) fills in the gap between smartphones, pocket PCs and ultralight laptops. It features a seven inch touch-sensitive screen, 40 gigabyte hard drive, wi-fi and bluetooth. When it goes on sale it is expected to cost a little under £700.
LG Electronics, one of the world's biggest optical drive manufacturers, also revealed at CeBit that it will support HD DVD as well as Blu-ray in the emerging war over the next DVD standard.
Until last week, LG Electronics was firmly in the Blu-ray camp, together with most of the other big consumer electronics firms such as Sony Corporation, Philips, Dell and Matsushita's Panasonic.
LG is the second high-profile Blu-ray supporter to c hange position after Hewlett-Packard, the world's second biggest PC maker, decided last month to also support HD DVD alongside Blu-ray.
HD DVD is a format supported by Toshiba and NEC.
Both formats offer more storage capacity than the current DVD format. Blu-ray says it offers higher capacity, up to 50 Gigabytes for a dual layer disk which is not yet on offer, while HD DVD says it offers a cheaper system which is compatible with the current DVD standard set in 1995.
At stake is the $24 billion-a-year home video market.
HD DVD players and disks are scheduled for introduction later this month, while the first Blu-ray player from Samsung is not expected before May and is expected to be at least twice as expensive.
Support from the PC industry is important. In the first years after the DVD was introduced in 1995, around 70 per cent of demand for DVD drives came from the personal computer industry.
Toshiba earlier said it would include an HD DVD drive in its most expensive laptop which doubles as a high definition television receiver.
Adoption by games consoles also plays a big role.
Blu-ray will be a standard feature in the upcoming Play-Station 3 (PS3) games console from Sony, but the launch date has just been delayed to later in 2006 from an initial spring introduction.
