CIO Magazine Tech Poll(TM) Indicates Technology Recovery Likely Next Year, Not This Year

FRAMINGHAM, MA – AUGUST 1, 2001 – For the second consecutive month the CIO Magazine Tech Poll in partnership with™ indicates the tech slump hit bottom in May 2001 and now projects a recovery in 2002. According to Gary Beach, Group Publisher of CIO magazine, "The foundation for recovery continues to be built with three in ten CIOs reporting in July they have already increased their tech spending plans. A more robust recovery is expected for the first half of 2002."


Dr. Ed Yardeni, Chief Investment Strategist of Deutsche Banc Alex Brown, continued, "The tech wreck may be over but it is going to take some time to clean up the mess left behind, so the next convoy of tech spending can come down the road."

The CIO Magazine Tech Poll, created by Dr. Ed Yardeni and CIO magazine, provides technology professionals, economists, and policymakers with a tool to gauge technology growth trends and to assess their impact on the overall economy. The Poll panelists are asked to answer questions on overall IT budgets and costs including data networking, communications equipment and compensation topics, Internet budgets and business issues like revenues from Internet activity, Internet purchases, forward budget plans and Internet hires, as well as some special questions on spending plans and spending factors. The results of July's Poll, which closed on July 19, are detailed below.


The CIO Magazine Tech Poll results are used to construct the CIO Magazine Technology Growth Indices (TGI).1 The Current Index (TGIC) tracks information technology (IT) activity over the latest 12-months and the Future Index (TGIF) does the same for the coming 12-months. In July, the TGIC and the TGIF were 0.6 and 0.9 respectively, compared to 0.7 and 1.0 in June. These latest readings are well below last November when the TGIC was 3.3 and the TGIF was 4.1. Dr. Yardeni observes, "The results show that tech may have hit bottom, but it isn't recovering yet because companies continue to be more interested in cutting their costs rather than expanding their businesses." (Table 1 providing historical data and growth charts are attached below.)


The July 2001 CIO Magazine Tech Poll panel predicts IT budgets will grow by 6% over the next 12 months, unchanged from the June prediction, but down sharply from 19% last November (Table 1). The panel reports IT budgets grew an average 6% over the previous 12 months, also unchanged from the June estimate, but again down sharply from 22% last November.2 These results also underscore the slowing of current and projected growth in IT spending.

IT Sectors. When asked about seven specific IT spending categories, Data Networking Equipment showed the most improvement from the previous month, with the percentage of panelists expecting to increase their spending during the next 12 months in this category rising to 48% from 45% in June. Outsourced IT Services remained the weakest industry with 32% of the panelists expecting to increase spending. Those expecting to spend more on computer hardware rose slightly to 44% from 42% in June (Table 1).

Compensation Costs. IT compensation costs (including salaries, benefits, and bonuses excluding stock options), reportedly rose by an average 6% in the 12 months ending in July, down from 7% in June and 14% in October.


CIO Magazine Tech Poll panelists report they expect to spend 15% of their IT budgets on developing business over the Internet (B2B2C) during the next 12 months. This is up from 13% reported for the previous 12 months, but down sharply from projections of 25%-plus made last fall. On the other hand, 40% of the panelists plan to increase spending on eBusiness software during the next 12 months.

Revenues from Internet Activity. Overall, panelists expect to generate 11% of their revenues from Internet activity (B2B2C) over the next 12 months, compared to 8% during the previous 12 months.

Internet Purchases. On average, panelists expect to purchase 17% of their materials, supplies and parts from the Internet, up from an estimated 12% over the past 12 months.

Forward Budget Plans. CIOs have clearly lost some of their enthusiasm for the Internet. Last August, they planned on spending nearly a third of their forward budgets on B2B2C. Now only 15% is allocated for Internet applications. Also last August, they projected 24% of their revenues would come from Internet transactions over the next 12 months. This projection was cut by more than half in the latest poll.

Internet as Source of New Hires. The respondents report that of all new hires during the past year, 12% were found via the Internet, and they expect this figure to increase to 17% in the coming year. Labor market conditions for IT professions ease with 20% reporting IT professionals were hard to find and retain in July, down from 24% last month and 76% last September.


Spending Factors. Weak profits continue to have an increasingly adverse impact on tech spending. This was cited by 44% of the panelists as the primary negative factor facing IT spending plans in 2001, up from 31% in February. Another 30% see "tight financial conditions" as the main problem, but that is down from 35% in February. Interestingly, only 18% said that spending might be weakening because there is sufficient IT capacity. Beach suggests, "CIOs are still spending, although the money is tougher to get. Executives have simply gotten smarter about purchasing anew. The curtailing of IT spending is also attributable to CIOs working through the technology vendor inventories. This is good news."

Second and Third Quarter Comparison. When asked to compare IT spending during the third quarter to the second, adjusting as best as possible for seasonality, 70% said it would be just as weak or weaker.

Pickup in IT Spending. Among the panelists, 17% say IT spending will pick up in the second half of 2001, while 45% agree it will not pickup until next year. Twenty-one percent (21%) of the panelists report that IT spending never slowed. Dr. Yardeni concludes, "These responses to our special question suggest that tech spending will remain depressed right through the end of the year."


The CIO Magazine Tech Poll was created by Dr. Ed Yardeni, Chief Investment Strategist of Deutsche Banc Alex Brown, and CIO magazine. Started in August 2000, the poll is already proving to be an accurate measure of technology spending and business trends. The latest poll was opened on Thursday, July 12, and closed on Thursday, July 19. An invitation to respond to the poll was distributed via e-mail to a panel of more than 1100 CIOs and 3,000 randomly selected CIO readers who match the job function criteria "CIO."

Demographics. In the July poll, there were 255 responses with 97% from North America. CIOs comprise 90% of the total, with CEOs, COOs and president titles accounting for 6% and "other" titles accounting for 4%. Very large firms with over 1,000 employees represent 43% of the results. A broad cross-section of industries is represented, including manufacturing (18%), finance (13%), technology services (11%), health care (9%), and distribution (4%).

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The complete July CIO Magazine Tech Poll can be found at Previous polls can be found at

1The indices are designed to gauge both the growth of technology and its impact on overall economic activity. Dr. Edward Yardeni constructed these indices from the results of the CIO Magazine Tech Poll to provide summary quantitative measures to assess the underlying trends of the new economy. The indices are calculated by multiplying the growth rates of current and future IT budgets by the new economy's share of current and projected business revenues, purchases, and hiring over the Internet.

2 Averages exclude responses over 100%.