A global recovery in demand for IT is driving increased shipments of servers, microprocessors and high-end mobile phones, according to new research.

But unlike the high-tech boom of the late 1990s, cracks are already apparent in the current spending upswing, researchers said. Growth in processor shipments will hit a record high this year before slowing next year and falling into negative territory in 2006, said the World Semiconductor Trade Statistics (WSTS) group. Smartphones are beginning to take off, but may be heading for a backlash from network operators because they may threaten the use of paid data services, according to consultancy Mako Analysis.

IDC said on Tuesday that European server sales rose 7.7 percent year-on-year in the first quarter of this year, following two quarters of consecutive growth. The first quarter experienced an expected seasonal decline, dipping 19.6 percent from the fourth quarter of 2003, and the weak dollar played a significant role in boosting sales figures - if dollar exchange rates had remained constant throughout the year, the growth rate for the first quarter would have been slightly negative, IDC said. Overall business confidence also remains shaky, the research firm said.

However, the positive trend of the market shouldn't be underestimated, IDC said, with trends such as consolidation, utility computing and grid computing creating demand for new servers. "The rebound in server spending has continued each quarter since the second half of 2003, largely benefiting from a general uptake in IT spending across several verticals including finance, telecoms, government, and manufacturing," stated IDC analyst Nathaniel Martinez.

IBM and HP remained at the top of the European server market, both growing more than 10 percent compared with the first quarter of last year. Significantly, IBM's Linux server business grew 67.9 percent in revenue compared with Q1 2003, IDC said, though it is still second to HP's Linux sales.

X86 servers led market growth, up 23.2 percent annually. The new market for servers with 64-bit extensions, such as AMD's Opteron, are showing a promising start with 69 percent sequential growth in shipments; IDC expects shipments of these chips to grow rapidly through next year. Though they are only two percent of the x86 market, they are already outselling Intel's 64-bit Itanium systems by a factor of 3.7, IDC said. Systems with 64-bit extensions can run 32-bit and 64-bit software with equal efficiency, unlike Itanium, which is designed principally for 64-bit software.

Linux continued its rapid growth, rising 41.5 percent annually, compared with a two percent annual decline in Unix servers and 24.6 percent annual growth in Windows servers.

The WSTS said global processor sales would grow 28.4 percent this year to a record high of $213.6 billion, boosted by demand for mobile phones and consumer electronics as well as PCs. In October, the group had predicted growth of 19.4 percent this year.

But following 8.5 percent growth next year, chips sales will shrink by 0.7 percent in 2006 with the end of the current boom in PC replacements, the WSTS said. In 2007, matters should look a bit better with 9.3 growth in sales.

Sales of high-end mobile phones with PDA features, known as smartphones, are beginning to gather momentum in Europe, according to research, but network operators should be sceptical of such devices as they have the potential to undercut lucrative new services, according to UK-based Mako Analysis.

In particular, devices powered by the Symbian OS pose a problem because they allow users to run any software they like, just as on a PC. If users don't want to pay a network operator for data services such as downloads, they can simply find an alternative source or use a competing application, Mako warned. Thus, network operators shouldn't necessarily encourage open operating systems such as the Symbian OS, the company said.

Nokia has faced recent sales troubles partly because of its focus on high-end, business-oriented smartphones, while operators and consumers favour mid-range phones running more limited operating systems.

3G phones, which can run open or closed operating systems, saw a sales jump in April, according to German research firm GfK. The company said 225,000 3G handsets were sold in Western Europe that month, double the sales in March and accounting for about 2 percent of the region's mobile phone market. The rise in sales was mainly due to the arrival of more appealing new handsets, GfK said.