The slump in the technology sector bottomed out in May and spending will increase, if by only small amounts, over the next 12 months, according to a new poll of chief information officers (CIOs) and other high-level managers conducted by U.S.-based CIO Magazine and Yardeni.com (CIO is owned by the same parent company as the IDG News Service, International Data Group Inc.).
The poll, which received 219 responses from the more than 4,100 people it was sent to and was conducted during August, gauged IT management’s expectations for their budgets and spending plans for the next year. Overall, the poll found that these managers expect IT budgets to grow by seven per cent over the next 12 months, a figure up from July’s six per cent, but down from the 19 per cent expected in November.
Also measured by the poll were six individual IT budget categories: infrastructure software, outsourced IT services, storage systems, hardware, networking equipment and telecommunication equipment. Respondents said that each sector would grow in the next 12 months.
The single biggest area of growth will be infrastructure services, the poll found, with 47 per cent of those surveyed saying that their budget for those items would increase. Only 27 per cent said that spending on outsourced services would increase, though 49 per cent expected growth in storage systems spending. Both hardware and networking equipment had their lowest totals of the year with growth forecast at 42 per cent and 45 per cent, respectively. Telecom equipment, however, hit its high note for the year, with 43 per cent of those surveyed seeing a boost in their IT budgets for that area.
Spending on e-business is also expected to rise, though not at the same rate predicted last fall. The poll found that 16 per cent of IT budgets will likely be spent on e-business, up slightly from the 15 per cent of the last 12 months, but below the 25 percent figure expected last fall. Respondents expect that 12 per cent of their revenue will come from e-business in the next year, while 22 per cent of purchases will be made online.
However, the numbers provided in this poll shouldn’t be cause for overconfidence, said Ed Yardeni, chief investment strategist at Deutsche Banc Alex. Brown Inc., who worked on the poll.
“We shouldn’t get too excited here because the third quarter is shaping up to be as bad or worse than the second quarter,” he said.
Despite that warning, Yardeni expects that the market will become strong again as early as the second quarter of 2002, and almost surely by the second half of next year, he said. The underspending that has taken place over the last few quarters due to financial uncertainty would drive the improvement, he said.
“Profits have always been a key driver of capital spending” and technology budgets are just another form of capital spending, he said.
Forty per cent of those polled blamed weak profits as the primary negative factor in their projections. Twenty-one percent, however, said that spending might be weak due to there already being sufficient IT capacity.
Notwithstanding that possibility, a majority of respondents think that IT spending will pick up next year. Fifty-two percent of those polled expect the improvement to come next year, with 73 per cent of respondents from large and very large firms expecting the increase in the first quarter of 2002. Of the 219 responses for the poll, 97 per cent came from North America, with very large firms of 1000 employees or more making up 39 per cent of the companies represented.