Vendors are contributing to the growth in virtualization with better technology. Intel, for example, launched on Monday 17 server processors based on its next-generation Nehalem EP microarchitecture, which has been fine-tuned for virtualization and widely adopted by server manufacturers.

In general, the software market will see a 0.3% increase in global spending to $222.6 billion. Besides virtualization, companies are expected to invest more in open source software, which is often offered at no charge with companies charging for maintenance and support services.

In addition, the software-as-a-service market will grow more than 20% this year, Biscotti said. However, SaaS represents only 7% or 8% of spending on business applications, so the growth isn't enough to have a major impact on overall spending.

Spending on telecommunications technology, which accounts for almost half of IT spending, will fall 2.9% to $1.9 trillion, Gartner said. Contributing to the decline is the drop in consumer spending on new mobile phones and wireless data services.

"Users will extend the use of their older [phone] models for now," Gartner analyst Richard Gordon said.

Finally, companies will spend 1.7% less this year on IT services, or $796.1 billion. Consulting services will be among the hardest hit, as companies freeze spending on new projects. While the financial industry has been decimated by the collapse of the U.S. housing market, spending on services by banks, insurance companies, and investment firms remain a "significant wildcard," Gartner analyst Kathey Hale said.

"That sector is not going to disappear overnight," Hale said. Financial institutions could be forced to spend more on technology and services to help meet new government regulations.

InformationWeek Analytics has published an independent analysis of the challenges around virtualization management. Download the report here (registration required).