IT budgets to grow in 2002, says Merrill Lynch

Merrill Lynch & Co. Inc. has forecast that IT budgets will see an increase of three per cent in 2002, with an even greater increase of eight per cent to nine per cent in 2003.

That compares with an average decrease in corporate IT budgets of 1.1 per cent in 2001, Merrill Lynch said in a report released Wednesday.

The report was based on a survey of 110 chief information officers (CIOs), 75 in the United States and the remainder in Europe. It concludes that users will see a “modest pickup” in corporate IT spending in 2002, with U.S. CIOs predicting two per cent growth in their IT budgets for the year and their European counterparts forecasting growth of four per cent, Merrill Lynch said.

Top priorities in 2002 spending will be security, ERP (enterprise resource planning) software, disaster recovery, Web development, Windows 2000 from Microsoft Corp. and storage, Merrill Lynch said.

Asked to rate their budgetary spending priorities (with 10 meaning most likely), CIOs indicated that they would most likely spend money on security (which on average received a rating of 6.8), virtual private networks (6.2) and Web services (6.0). The lowest ranking priorities on the list were storage outsourcing (1.9), Gigabit Ethernet-based metropolitan area networks (2.6), Linux (3.2) and Voice over Internet Protocol (3.4), the report said.

The report forecasted a 12 per cent growth in corporate IT spending on storage in the new year, a 5.8 percent growth in software and a 3.6 per cent growth in IT staffing. Servers and communications equipment will see a growth of 1.8 per cent and 0.5 per cent respectively in 2002, Merrill Lynch said.

Declining spending will be seen in IT services, with a decline of three per cent and PCs, with an expected decline of 1.5 per cent, according to the report. Sixty eight percent of the CIOs surveyed indicated that 2002 would not be a big year for PC upgrades at their companies, Merrill Lynch said.

For IT vendors in general, 73 per cent of the CIOs surveyed believe that 2002 will turn out to be a bad year financially, mainly because the large number of suppliers on the market is expected to drive prices down, Merrill Lynch said.

On the flip side, the CIOs indicted that four major vendors – IBM Corp., Microsoft, Dell Computer Corp. and Cisco Systems Inc. – are expected to “fare especially well,” Merrill Lynch said.

IBM was given positive comments for its “aggressive” attitude, service orientation and product breadth while Microsoft was noted for its desktop presence and “less expensive database,” Merrill Lynch said. Dell is now seen as the “most stable PC vendor,” while Sun Microsystems Inc. replaced Hewlett-Packard Co. (HP) as having the best server products, the report said.

HP and Compaq Computer Corp. – which are famously attempting to merge — both received a high degree of negative comments from the CIOs in the survey. HP was singled out for poor hardware quality and “confusion” while Compaq garnered the comments “reputation getting flat” and “lack of confidence,” Merrill Lynch said.

Nevertheless, when the CIOs were asked to give a plus, neutral or minus rating to the likelihood of their company spending money with each vendor, HP received an overall +15 (39 pluses, 47 neutrals and 24 negatives) while Compaq received a +31, Merrill Lynch said. “Compaq and HP do better than previous answers would lead one to believe. HP has a rejuvenated enterprise line. We don’t know why Compaq rates this well, perhaps because of PC upgrades,” Merrill Lynch said.

On the plus side, Microsoft received an overall +88 (91 pluses, 16 neutrals and 3 negatives), Cisco +43, IBM +30, Oracle Corp. +15 and Sun an overall neutral rating of 0 (31 pluses, 48 neutrals and 31 negatives), Merrill Lynch said.

On the negative side, Siebel Systems Inc. got an overall rating of -38 (6 pluses, 60 neutrals and 44 negatives), SAN (Storage Area Networks) vendor Brocade Communications Systems Inc. -36, Computer Associates International Inc. -29, server software vendor BEA Systems Inc. -28 and storage giant EMC Corp. -13, Merrill Lynch said.

Merrill Lynch, in New York, can be contacted at