Cautious IT spending predicted for 2003

IT spending is expected to grow slightly in 2003, according to two new reports released Monday, as technology buyers grapple with a continued economic downturn and the prospect of a U.S.-led war with Iraq. Forrester Research Inc. predicted a 1.9-percent growth in IT spending this year over 2002. CIO Magazine, meanwhile, reported that CIOs it polled in February expected to spend 5.2 percent more on technology over the next 12 months, yet their spending expectations remained flat from January to February.

Stunted IT spending is not surprising given companies’ weak profits and tighter financial controls, according to CIO Group Publisher Gary Beach.

“I think this is going to be a transition year,” Beach said.

CIO Magazine, based in Framingham, Massachusetts, garnered its results using its Tech Future Growth Index (TFGI), which projects IT activity over the next 12 months by polling hundreds of CIOs. (CIO Magazine is published by CXO Media Inc., a division of the International Data Group Inc., parent company of the IDG News Service.)

While CIOs spending expectations held steady, their priorities have shifted a bit, the magazine reported, with executives saying that more of their money was earmarked for security software and developing business-to-business and business-to-consumer transactions. Meanwhile, investments in infrastructure software and computer hardware are expected to tick down.

More surprising, according to Beach, however, was a jump in large companies that said they planned to delay an increase in their IT spending. While 21 percent of large firms surveyed in January said they planned to delay a spending increase until beyond 2003, that number jumped to 40 percent in February, Beach said.

Also surprising was an increase in companies saying that they would invest in telecommunications equipment, Beach said, which rose from 26.6 percent of respondents in January to 31.5 percent in February.

And while Forrester predicted a modest increase in IT spending for 2003, it said that mid-size firms were expecting to spend a little more, reporting a 2.6 percent spending hike compared to the average 1.9 percent growth rate. These firms will concentrate their investments in business intelligence tools and data mining and analytical software, Forrester reported, as they try to get the most value out of existing investments.

In this vein, companies are increasingly looking to leverage the Net by spearheading projects involving Web service standards, and are cutting back on outside consultants and contractors.

In fact, the number of firms completing at least one project using the XML (Extensible Markup Language) or SOAP (Simple Object Access Protocol) Web standards grew from 11 percent at mid-2002 to 31 percent currently, Forrester reported.

The Cambridge, Massachusetts, researcher also predicted that finished goods manufacturing sector will increase spending by 7.4 percent in 2003, and IT spending among the high-tech industry will stage a rebound after a brutal 2002. The financial sector, which has historically had high rates of IT spending growth will reverse course into negative growth, however, although it will still spend the most on IT compared to other industries, Forrester said.

IT buyers’ guarded spending is not a surprise, according to both reports, given the continued shaky economic climate and prospect of war. While technologies that supply bolstered security and the ability to leverage existing investments stand to gain in the current cautious climate, technologies sporting big price tags and requiring big changes have less hope.

After all, security spending is easier to sell to CEOs, Beach noted. But while executives prefer to play it safe, Beach said that a looming war with Iraq will not likely shake them further, given that they factored a possible war into their IT budgeting decisions last year.

“If anything, they will upsize their spending it anything positive happens,” he said.