The first signs of optimism returning to the IT industry were starting to show at the end of last year - but will 2004 live up to these hopes, or will it be another false dawn?

The next 12 months will see more bad news for some struggling suppliers, but there is a growing belief that many users are ready for new IT-based projects. Whether that is enough to kick-start an upturn is another matter.

Whatever happens, technology will remain a major talking point for businesses and the public sector. Here is Computing's guide to the issues we believe will be dominating the IT agenda this year.

Perhaps the highest-profile government IT project ever, the £2.3bn NHS National Programme is central to health service modernisation. This year, director general of IT Richard Granger will be expected to deliver. The suppliers have been selected, the contracts awarded, and work is starting. No doubt the cynics are sharpening their knives in the hope it will all go wrong. We'll be wishing Granger well - his success will benefit us all - but also keeping a close eye on progress.

Outsourcing was the success story of 2003 - and offshore the most controversial topic. Many major companies and government departments handed their IT operations to external service providers last year, and many others have procurement projects underway that will result in contract awards this year. Indian will continue to boom - and providing services from overseas locations will become a standard element of most outsourcing contracts.

The government's plans for national identity cards will be one of the most hotly debated political issues of the year, and the technology that will need to support it will be heavily scrutinised. Question marks remain over biometric systems, as well as the capability of IT suppliers to implement such an enormous and controversial project. Privacy and civil liberty concerns will also have to be resolved. The Passport Service will be leading trials of the technology this year that will be crucial to delivering such an ambitious policy.

This could be the year that IT starts to release office workers from their desks. Wireless networking, WiFi hotspots, PDAs, cheaper notebooks and smartphones will allow mobile access to personal and corporate information. Expect more employees to take advantage of last year's legislation on flexible working for parents. And when the big four mobile operators begin their 3G rollouts, high-speed wireless communications will become increasingly mainstream.

Many users still feel they cannot rely on commercial software to secure their information and networks. Security, privacy and authentication are major headaches - and although suppliers are moving in the right direction, there remains a gap in trust and confidence. Microsoft in particular will come under increasing pressure to reduce the regularity of security flaws in its software. The authorities will be hoping for some high-profile successes in the fight against electronic crime.

Most experts agree there is no 'next big thing' on the horizon that will spur IT spending, in the way that ERP or CRM did in the late 1990s. But there are some technologies that will be increasingly on the radar of IT directors in major companies. Expect radio frequency ID tags (RFID) to be trialled by more retailers and supply chain providers. Grid computing will start to move out of the research and high-performance systems arenas and find more commercial applications. And utility or pay-as-you-go computing will be investigated by leading multinationals to cut costs and increase flexibility.

2003 went pretty much as experts predicted, with many mid-range suppliers being eaten up by larger rivals as the industry rationalised for a lower-growth future. EMC made three acquisitions, JD Edwards was bought by PeopleSoft, IBM completed the purchase of Rational, and there were many other smaller deals. Oracle's Larry Ellison hasn't given up on his hostile bid for PeopleSoft, and the merger and acquisition fever will continue in 2004 across hardware, software and services sectors.

A mountain of regulations and legislation affecting European businesses comes into affect over the next 18 months. Basel 2, International Accounting Standards, anti-money laundering, Sarbanes-Oxley and many others will place a growing burden on IT departments to ensure their data is stored, archived, access or reported in a suitable way. It won't help the bottom line much, but it will keep IT staff busy during 2004.

If IT suppliers are still struggling for profit growth, it doesn't necessarily mean users are not spending money - they're just smarter and negotiating better deals. We think 'recovery' is the wrong debate - it's about a fundamental change in the IT industry as users finally make the long-awaited shift away from buying new technology because it's new technology, and start to make IT a core part of the strategic decision-making process. 2004 will see big strides in this direction, although it may be a while yet before the process is completed.

You know that Linux is becoming a serious option for users because Microsoft talks about the open-source operating system so often. Last year, major players such as Unilever committed to Linux, and the government implemented its first Linux-based system, as well as starting a series of open-source pilot projects. Sun Microsystems is aggressively pushing its open-source desktop system, and others will follow. The legal action between SCO and IBM about alleged copying of Unix code is a cloud on the horizon and may delay purchases, but if the anti-SCO factions prevail, then expect boom time for open-source.

Many of Tony Blair's biggest public sector reforms are entirely dependent on IT. If real improvements are to be felt by citizens in time for the next election, those systems need to be progressing fast this year. A high-profile head of egovernment will be recruited to spearhead cross-departmental strategies. The £5bn Defence Information Infrastructure contract will be awarded in 2004, as will the £1.4bn deal with the Department of Environment, Food and Rural Affairs. Cap Gemini Ernst & Young will be expected to complete the handover of the Inland Revenue's systems from EDS in July. And local authorities will be edging ever closer to the 2005 deadline for online public services.

Research suggests more data was created and stored in the last three years than ever before. IT directors tell us that one of the biggest challenges they face is managing that data and making it available in a meaningful way for users and senior executives. Technology such as knowledge management, business intelligence, and storage management will be major considerations this year as businesses try to turn data into valuable information.

I'd like to see us become masters of the hi-tech universe. We need a national drive to get really skilled in using the amazing tools and technologies at our disposal. It's an absolute pre-requisite if we're to have better public services, more productive enterprises and an improved quality of life for all of us in UK plc.

Oracle UK is very optimistic as we enter 2004. We're seeing signs of improvement in the IT economy, and we're looking forward to continuing our current close customer relationships in the UK, and to creating new ones.

Our customers tell us that on demand is emerging as the most compelling combination of business insight and technological expertise. I see take-up of this transformational force really ramping up through 2004.

Microsoft will concentrate on demonstrating the strategic advantage that ICT brings to our customers. I also hope that as an industry we will work together on issues such as security, to ensure that confidence and perceived value of ICT reaches an all time high.

The outlook for the industry is good. I think people will be amazed at the pace of change towards open standards and there will be an increasing focus on vertical integration around customer business problems and enhancing operational efficiency.

I have three main aims: To build on the success of the first 18 months of HP's merger; to make a contribution to HP's aim of using IT to bring people together and cross social boundaries; and to build the foundation to double the HP Services business in three years.

2003 was an interesting and challenging year from for most and I suspect that 2004 will hold more of the same. I believe that SAP will continue to steadily grow market share as we continue to focus on the growth engines for business.

2004 promises to be the most exciting year for our industry in recent memory. ICT is finally being used by clever people to solve the really big problems that surround us in the UK. Our resolution will be to constantly question conventional wisdom and ask if there is a better way than the accepted norm.