IBM, Dell among CIO's top picks

NEW YORK: IBM Corp. and Dell Inc. are poised to gain market share in 2005, while Sun Microsystems Inc.'s outlook remains cloudy, according to a Merrill Lynch survey of 100 chief information officers released.

The survey also projected that Cisco Systems Inc., Microsoft Corp., SAP AG and EMC Corp. are likely to win more business in 2005.

Overall, information technology budgets were forecast to grow five percent in 2005, compared with four percent growth in 2004, Merrill said.

Customers are shifting spending on software and servers to IBM, the survey said. But IBM's recent sale of its PC business to China's Lenovo Group Ltd. is seen as hurting its other businesses.

About 60 percent of the CIOs said IBM made a bad decision to sell its PC business to Lenovo, with only 28 percent saying it was a good bet. Roughly 45 percent of respondents said the sale would cause them to consider switching vendors, and if they did switch, their purchases of other IBM products might also be reduced.

IBM PC officials said they have been fighting the impression among corporate customers that IBM is exiting the PC business. While hardware production and design will shift to Lenovo, IBM will retain control of sales, support and services. IBM also keeps a nearly 20 percent stake in the merged Lenovo.

CIOs expect Dell to gain share at the fastest rate. Many users would like to see Dell offer servers running Advanced Micro Devices Inc.'s Opteron processor. But interest in Dell printers is tepid, according to the survey.

Computer server and storage equipment maker Sun Microsystems Inc.'s outlook remains cloudy. Only 4 percent of the CIOs surveyed expect Sun to increase its share of their spending in 2005.

"The problem is that for many users, whatever Sun does is too little too late," said Merrill strategist Steven Milunovich.

SUN EXPECTS TURNAROUND

Sun is telling investors that a turnaround is close. The company, hit harder by the technology recession than its rivals, said it is moving out of stabilization mode with its strongest product lineup ever.

Analysts expect Sun's revenue to rise almost 4 percent in the current quarter, and its stock is trading at a price-to-earnings multiple of 127 times for its fiscal year ending in June.

Overall, CIOs lean against mergers. The primary concern is reduced competition, which can keep prices high. They are also concerned about higher maintenance costs, reduced product innovation and loss of vendors' focus as they get bigger.

But they seem to be more bullish on Symantec Corp.'s planned acquisition of Veritas Software Corp. than investors have been, saying the companies' product offerings are complementary. Investors did not like the deal, sending Symantec's stock down 30 percent since merger rumors surfaced about two months ago.

Software and storage are at the top of companies' technology wish lists in 2005, with services and computers lower priorities.

Software has grown in importance as companies try to get more out of existing systems, using business intelligence, security and application integration software.

Storage is still important as CIOs contend with new regulatory rules which require companies to preserve more e-mails and phone conversations.

Personal computers, which had been in the middle of spending growth agendas, fell to the bottom. This is of particular concern to PC makers, as consumer spending on PCs is also expected to drop.

Demand for services has weakened as many large companies have outsourced their operations.