U.S CIOs see moderate 2003 budget recovery

By : |December 3, 2002 0

Eric Auchard

NEW YORK: The CIO Magazine’s November poll of 301 corporate technology decision makers found information technology (IT) budgets would increase 5.1 percent over the next 12 months, up from the 4.4 percent upcoming year increase CIOs expected in October.

Executives surveyed said that a robust recovery in corporate technology spending will only occur with a broader recovery in corporate profits and a loosening of tight credit. And any rebound will only partly reverse the steep budget declines seen over the past two years, the pollsters said.

“Despite weak profits and declines in spending, CIOs are more optimistic about IT spending because of replacement needs, such as computer hardware, security and (underlying) software,” CIO Magazine Publisher Gary Beach said in an interview. Budgeting for software, hardware and networks makes up as much as one-third of overall capital spending and as such is crucial to any sustained overall rebound in business spending.

However, the survey offered little near-term hope. More than 75 percent of respondents said they anticipated their fourth-quarter tech spending to remain unchanged (47.2 percent) or lower (29.4 percent) versus the third quarter. Historically, year-end spending swells as corporate technology buyers rush to use up existing funds — a process nicknamed “budget flush.”

Respondents to the November survey, which was drawn from readers of the trade publication aimed at corporate chief information officers, said that spending would modestly increase after sharp declines over the past two years.

The panels said their own IT budgets had decreased by an average of 0.5 percent over the past 12 months, a slight rise over the 1.5 percent decline in previous-year spending described in CIO Magazine’s October survey of its readers.

The survey, conducted monthly for the past two years, showed signs of life only in selected sectors of tech-budgets. And there was no indication that spending would recover to boom-year levels of 2000, when it grew around 11.5, according to market research firm International Data Corp.

Sober outlook, but signs of growth

November’s responses highlighted growing momentum in spending on so-called e-business software used for web-based sales and marketing as well as manufacturing logistics and product distribution management, Beach said. Some 37 percent of respondents plan to increase their spending on e-business software in the coming year, up from 28 percent who planned to increase their spending just a month ago. Fence sitters — those who saw no increase in e-business spending — fell to 41.5 percent from 49.5 percent in October.

Security software continued to show the highest increase as 56 percent plan to increase this corporate budget item. But planned spending on storage dipped and personal computer upgrades appeared set for further declines. Some 40 percent of buyers in the survey plan to increase spending on data storage gear used to house office documents and e-mail, down from 47 percent who planned to boost such spending a month ago.

Software again set to drive hardware sales

If historic trends prove reliable, recovery from the worst spending downturn in industry history will be driven by demand for new software applications that tax the performance of aging computers, spurring demand for faster computer hardware.

One example of this is the estimated 50 percent of desktop machines still running older versions of Microsoft’s basic software operating system known as Windows NT or Windows 98.

Beach said that, with Microsoft planning to quit supporting these two aging software systems by June of 2003, corporate buyers are looking to upgrade to newer Windows 2000 or XP systems, which will in turn require faster running PCs. A recent IDC forecast pegged 2003 year IT spending growth at 5.7 percent, rising to levels around 10 percent in 2005.

Other tech market surveys have forecast flat to moderate single-digit growth in the upcoming year, assuming no further global economic shocks and a benign outcome to the looming war between the United States and its allies with Iraq. November’s poll was conducted from November 7 to 14, and released in conjunction with financial analysts from Deutsche Bank and Prudential Securities.

CIO Magazine is a publication of International Data Group, a sister company of market research group IDC. Both are based in Framingham, Massachusetts.

© Reuters

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