CIO Spending Projections Remain Consistent For Fourth Consecutive Month

FRAMINGHAM, MA – MAY 3, 2004 – According to April’s CIO Magazine Tech Poll™, tech spending projections remain consistent for the fourth consecutive month. In addition, the poll reports the number of respondents reporting salary increases is the highest in 15 months.

“Even with spending at a slow and steady pace, planned spending increases for infrastructure software is at one of the strongest levels since 2002, indicating CIOs are finally planning to address brittle network infrastructures and the aging software applications that have been in place for years,” says Gary Beach, Group Publisher of CIO magazine. “Also, the rise in the number of respondents reporting compensation increases is a hopeful sign that the positive effects of the recovery are starting to reach employees.”

“Projected budget growth rates of close to 7% have stabilized over the past few months,” says Dr. Ed Yardeni, Chief Investment Strategist for Prudential Equity Group. “While current dollar spending is growing at a slow, but steady pace, prices are falling so CIOs are getting more bang per buck.”

“Although the overall IT budget growth projection remained healthy month over month,” says George Elling, Managing Director, Enterprise and PC Hardware Research for Deutsche Bank Securities, “the fact that large corporate IT spending plans declined again, leads us to believe that some CIOs are not yet comfortable with a clear path upward in the economy.”

The CIO Magazine Tech Poll provides technology and business executives, 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 current and projected IT budgets on a monthly basis. Also covered are future spending plans for IT hardware, software, services, and Internet initiatives. The results of April’s poll, conducted from April 8-15, are detailed below.

CIO magazine technology growth indicators

The CIO Magazine Tech Poll results are used to construct the CIO Magazine Tech Future Growth Index (TFGI) which projects IT activity over the next 12-months. In April, the TFGI was 2.8, down slightly from March. (Attached below are Tables 1 and 3 providing historical data and selected charts).

Overall IT budget and costs

During April 2004, the CIO Magazine Tech Poll panel projected IT budgets to grow by 6.6% over the next 12 months, lower than March levels of 7.3%. In addition, the panel reports IT budgets increased by an average of 4.3% over the previous 12 months, lower than 4.8% reported in the March poll.

IT sectors

When asked about spending in eight specific IT categories, the average number of panelists planning to increase spending increased to 45.1% in April (from 42.0% in March). Those planning to decrease spending decreased slightly to 13.2% (from 13.6% in March)3. Security software continues to be the strongest sector in the poll with roughly 59.9% of respondents planning to increase spending (an increase from 55.6% in March) while only 2.5% plan to decrease spending (versus roughly 1.5% in March).

Computer Hardware. The outlook for Computer Hardware spending declined month-to-month. Among the panelists, 53.0% plan to spend more, down from 54.2% in March, while 16.5% plan to cut spending, up from 15.3% of panelists in March.

Infrastructure Software. The percentage of CIOs planning to increase spending on infrastructure software was 39.5% in April, a significant increase from 33.6% in March. Those planning to decrease spending fell to 11.2% in April from 14.6% in March.

Compensation Costs and Labor Market Conditions. IT compensation costs (including salaries, benefits, and bonuses excluding stock options) reportedly rose by an average of 4.4% in the 12 months ending in April, up from 3.7% in March, and up from 2.2% a year ago. Four-point nine percent (4.9%) of respondents report IT professionals were hard to find and retain, down from 6.9% last month and down from 5.1% a year ago.

Internet Budgets and Business

Internet Revenues. Overall, panelists expect to generate 11.1% of their revenues from Internet activity (B2B2C) over the next 12 months, compared to 8.9% during the previous 12 months. This is down from last month's levels of 12.7% and 10.6%, respectively.

Internet Purchases. On average, during the next 12 months, panelists expect to purchase 19.9% of their materials, supplies and parts over the Internet, up from an estimated 17.5% over the past 12 months.

CIO magazine tech poll

The CIO Magazine Tech Poll was created by CIO Magazine in August 2000 in association with Deutsche Bank Securities and Dr. Ed Yardeni, Chief Investment Strategist, Prudential Securities, Inc. The poll is proving to be an accurate indicator of technology spending trends. The latest poll was opened on Thursday, April 8, and closed on Thursday, April 15. An invitation to respond to the poll was distributed via e-mail to a panel of more than 2,000 chief information officers and 3,000 randomly selected CIO readers who match the job function criteria “CIO.”

Demographics. In the April poll, there were 288 responses with very large firms with over 5,000 employees representing 16% of the results. A broad cross-section of industries is represented, including technology services (11%), non-computer/communications related manufacturing (16%), finance (12%), state or local government (7%), health care (10%) and wholesale and retail distribution (8%).

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The complete April CIO Magazine Tech Poll can be found at http://www.cio.com/info/releases/0404techpoll_results.html. Previous poll results can be found at http://www.cio.com/info/releases.

The TFGI is calculated by multiplying the projected growth rate of future IT budgets by the average percentage of respondents saying they plan to increase spending on eight unique categories: computer hardware, data networking equipment, telecom equipment, storage systems, outsourced IT services, infrastructure software, and eBusiness software.

2 Averages exclude responses over 100%.

3 Starting in January 2002, Security Software has been added to the group of IT sectors surveyed in the Poll.

Table 1: CIO Magazine Tech Poll™ – Summary Results 2004

Summary Results – 2004 Apr Mar Feb Jan

1. CIO Magazine Technology Growth Indicators

Tech Future Growth Index* 2.8 2.9 2.9 3.2

2. IT budget (% increase)**

Past 12 months 4.3 4.8 4.5 4.4

Next 12 months 6.6 7.3 7.2 8.2

IT Future Spending

3. Computer Hardware

Increase 53.0 54.2 49.8 51.3

Decrease 16.5 15.3 17.3 14.3

Unchanged 29.5 30.2 32.2 33.6

4. Data Networking Equipment

Increase 46.7 43.4 42.1 43.4

Decrease 13.7 16.8 15.1 14.6

Unchanged 38.9 39.1 41.5 41.0

5. Telecom Equipment

Increase 39.3 35.6 34.7 37.0

Decrease 20.4 18.2 18.0 19.3