Studies conflict over IT spending trends

Boom or bust? Spend or slash? Two recent surveys offer opposite views of what’s happening to corporate IT budgets.

Gartner Inc. Tuesday released the results of a survey that shows more than half of enterprises plan to increase IT spending this year, with an average increase of 21.5 percent. Gartner predicts that gross IT spending will be up 10 percent across all industries.

The Gartner report comes a few days after Merrill Lynch released a more pessimistic survey of corporate chief information officers (CIOs) that indicates IT spending will grow only 4 percent in the U.S. this year and will contract almost 2 percent in Europe. These figures are down substantially from Merrill Lynch’s January projections of 9 percent IT budget growth in the U.S. and 13 percent growth in Europe.

The conflicting findings are symptomatic of a shaky economy, where some industries and companies are faltering while others are expanding. Research on corporate IT spending shows similar disparity.

However, the two reports agree that corporate spending on hardware and software is declining, while outsourced IT services are on the rise. Both reports say internal staff comprise the largest component of corporate IT budgets.

“There’s a tendency to assume that when hardware and software spending are down, the dedication or focus on IT is down. We see no evidence of that,” says Barbara Gomolski, research director for Gartner.

“We aren’t getting harried calls from our clients saying they have to slice 25 percent of their IT budget,” Gomolski adds. “What we did see in the last six months was an increased focus on… justifying IT expenses.”

Merrill Lynch, however, asserts that “this appears to be a global IT recession,” in its TechStrat survey released July 10. “The question now is when will the U.S. pick up?”

The Gartner survey was more comprehensive, involving interviews with 589 organizations between March and June.

The Merrill Lynch survey of 65 U.S. and European CIOs was conducted in June.

The optimistic Gartner survey said 57 percent of its respondents plan to increase IT spending, while 21 percent plan to decrease IT spending. The average decrease was 12.7 percent.

“Non-discretionary spending for IT staff, facilities, infrastructure and applications maintenance held pretty steady and increased in some cases,” Gomolski says.

Gartner reports a wide disparity in IT budget trends among various industries. The most bullish industry was government, which plans to increase its IT budget as a percent of overall budget by 18 percent between 2000 and 2002. Harder hit industries include utilities, which plan to reduce their IT budgets as a percentage of revenue by 15 percent, and construction companies, which plan to reduce their IT budgets as a percentage of revenue by 13.5 percent, over the same two-year period. IT capital budgets, which include network hardware and software purchases, are being hit harder than operating budgets. Among the industries cutting IT capital spending most dramatically are the utilities and petroleum segments, while healthcare companies and banks project increases.

Gartner says its survey shows the overall level of interest in IT within large corporations, which tend to initiate long-term IT projects, but doesn’t necessarily reflect IT spending trends in small and mid-sized companies.

“[Customer resource management] and e-business initiatives tend to be enduring projects that require budget commitments going forward,” says Gartner analyst Jeremy Grigg. “We’re seeing the deferral of new projects rather than the cutting back on the existing infrastructure.”

In the gloomier Merrill Lynch survey, 72 percent of the CIOs polled expect their IT spending to remain tight during the second half of the year. These CIOs report more pressure from their CFOs to quantify the return on IT investments.

“Buyers remain fairly cautious,” Merrill Lynch reports.

Nearly two-thirds of the CIOs polled said they will not accelerate PC spending next year, and three-quarters said they are against Microsoft’s subscription model for software sales. They were also negative about Linux, with two-thirds of CIOs saying they would not buy Linux-based systems in a meaningful way in the next 18 months.

Still, all 65 CIOs said companies most continue to invest in e-business initiatives that involve adding Web-based front ends to key business processes.

“‘Webification’ is one of our long-term tech trends in part because CIOs keep listing it as strategic despite current budget woes,” Merrill Lynch states.