IT Spending Cools Slightly In September

FRAMINGHAM, MA – October 1, 2004 – CIOs lowered their forecasts for future IT spending slightly, according September’s CIO Magazine Tech Poll™ with CIO’s predicting over 7.4% spending growth over the next 12 months, compared to last month’s 8.9%. While some sectors of IT held firm, spending intentions for computer hardware, data networking, telecom equipment and infrastructure software saw declines. Also, when asked where the next great wave of technology innovation is likely to come from almost one in three panelists (30.1%) saw it coming from outside the United States, Silicon Valley was second (18.9%) followed by somewhere else in the United States (17.3%).

“IT projections cooled a bit in September after a very hot summer,” says Gary Beach, Group Publisher of CIO magazine. “Still, year over year the growth for IT spending remains strong and the fact that some critical industries such as security and storage remained hot bodes well for additional technology spending.”

“CIOs continue to report that their budgets should grow at a high single-digit rate,” says Dr. Ed Yardeni, Chief Investment Strategist for Oak Associates. “This relatively slow but steady pace suggests that the current tech cycle should be sustainable and long lasting.”

”While CIO spending intentions weakened slightly in the most recent poll, certain sectors of technology, like security and storage continue to stand out as well insulated from spending concerns,” says Todd Raker, Director Infrastructure Software Research for Deutsche Bank Securities.

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 September’s poll, conducted from September 9-16, 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 September, the TFGI was 3.0, a sharp decline from previous results of the last four months. (Attached below are Tables 1 through 3 providing historical data and selected charts).

OVERALL IT BUDGET AND COSTS

During September 2004, the CIO Magazine Tech Poll panel projected IT budgets to grow by 7.4% over the next 12 months, lower than August’s 8.9% and the lowest projection since April 2004. However, the panel reports IT budgets increased by an average of 5.9% over the previous 12 months, consistent with August’s result of 6.0%.

IT SECTORS

When asked about spending in eight specific IT categories, the average number of panelists planning to increase spending decreased to 43.7% in September (from 46.7% in August). Those planning to decrease spending increased to 14.0% (from 11.7% in August).3 Security software continues to be the strongest sector in the poll with roughly 65.1% of respondents planning to increase spending (up from 61.3% in August).

Computer Hardware. The outlook for Computer Hardware spending decreased slightly month-to-month. 49.6% of panelists plan to spend more, down from 53.2% in August, with 15.5% intending to cut spending, compared to 15.9% in August. The responses from panelists indicating no change to their computer hardware spending increased from 29.8% to 34.1%.

Compensation Costs and Labor Market Conditions. IT compensation costs (including salaries, benefits, and bonuses excluding stock options) reportedly rose by an average of 4.6% in the 12 months ending in September, up slightly from 4.5% in August. Eleven and a half percent (11.5%) of respondents report IT professionals were hard to find and retain, up significantly from 6% a month earlier.

INTERNET BUDGETS AND BUSINESS

Internet Revenues. Overall, panelists expect to generate 11.5% of their revenues from Internet activity (B2B2C) over the next 12 months, compared to 9.4% during the previous 12 months. This is up from last month's levels of 11.3% and 9.2% respectively.

Internet Purchases. On average, during the next 12 months, panelists expect to purchase 25.1% of their materials, supplies and parts over the Internet, up from an estimated 21.7% over the past 12 months.

SPECIAL QUESTIONS

In September’s poll, panelists were asked from where they thought the next wave of technology innovation would originate. Of those polled, 69.9% indicated they believed the United States would lead the next wave, while 30.1% thought new innovations would come from outside the U.S. Within the U.S., 18.9% of respondents thought Silicon Valley would again provide sources of new technology, followed by the Pacific Northwest (14.5%) and the Northeast (11.6%).

CIO MAGAZINE TECH POLL

The CIO Magazine Tech Poll was created by CIO magazine in September 2000 in association well known economist Dr. Ed Yardeni, currently Chief Investment Strategist, Oak Associates. The poll is proving to be an accurate indicator of technology spending trends. The latest poll was opened on Thursday, September 9, and closed on Thursday, September 16. 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 September poll, there were 253 responses with very large firms with over 5,000 employees representing 19% of the results. A broad cross-section of industries is represented, including technology services (13%), non-computer/communications related manufacturing (13%), finance (13%), state or local government (8%), health care (13%) and wholesale and retail distribution (6%).

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The complete September CIO Magazine Tech Poll can be found at http://www.cio.com/info/releases/0904techpoll_results.html. Previous poll results can be found at http://www.cio.com/info/releases.