IT Spending Projections Dip Slightly In November

FRAMINGHAM, MA – DECEMBER 1, 2004 – In the November CIO Magazine Tech Poll™ Information Technology spending projections dipped slightly as CIO’s predict spending growth of 8.4% over the next 12 months, compared to last month’s 8.7%. The top spending priorities of CIO’s indicate that Security Software, Storage Systems and Data Networking continue to be leading concerns. The poll also determines that the IT labor market continues to improve with the number of respondents reporting IT help as plentiful falling to the smallest number (18.3%) in three years. In this month’s special question, CIOs also report that they consider 2004 to be an average year (48.9 %) over a good year (38.4%).

“As the overall economic and tech spending forecasts brighten, a sole dark cloud looms on the horizon.” says Gary Beach, Group Publisher of CXO Media, Inc. ”CIO's, particularly those at the very largest firms, report it is getting harder and harder to find and keep IT talent. This could delay the purchase and implementation of new systems and software.”

“IT spending continues to grow at a steady pace according to our poll,” says Dr. Ed Yardeni, Chief Investment Strategist for Oak Associates. “I believe that spending growth could be surprisingly strong in 2005 as business steps up efforts to boost productivity using technology to do so.”

"Limited new PC applications and a slowing down in the rate of processor performance improvement seem to be impacting corporate rates of hardware upgrades," says Ben Lynch, Managing Director, Semiconductor Research for Deutsche Bank Securities. "Despite the aging of the Y2K upgrade base, the November poll shows that the average PC upgrade schedule is 3.4 years, up from 3.0 years four years ago."

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 November’s poll, conducted from November 4-11, 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 November, the TFGI was 3.5, a decline from previous 3.7. Excluding the dip in September, TFGI has been on a positive trend this year. (Attached below are Tables 1 through 3 providing historical data and selected charts.)

OVERALL IT BUDGET AND COSTS

During November, the CIO Magazine Tech Poll panel projected IT budgets growth of 8.4% over the next 12 months, down from October’s 8.7% forecast. The panel also reports that IT budgets increased by an average of 9.1% over the previous 12 months, the highest result since April 2001.

IT SECTORS

When asked about spending in eight specific IT categories, the average number of panelists planning to increase spending over the next 12 months fell to 43.4% in November, from 45.1% in October.3 Those planning to decrease spending rose to 13.5%, from 12.9% in October. Results for Security Software soften in this month’s poll, with 53.2% of respondents planning to increase spending, versus a high of 63.5% in October. However this segment continues to be the strongest sector in the poll. Spending on Storage Systems also continues to be a top priority, with 51.9% of respondents planning to increase spending in this category (up from 49.6% in October). Data Networking and Computer Hardware also were top priorities, with 49.8% and 49.5% of respondents, respectively, planning on increasing spending in this month’s poll.

Computer Hardware: November results indicate that 49.5% of panelists plan to increase spending on Computer Hardware (down from 51.3% in October), while 17.4% intending to decrease spending (versus 14.6% in October).

Compensation Costs and Labor Market Conditions: IT compensation costs (including salaries, benefits, and bonuses excluding stock options) rose an average of 5.7% in the 12 months ending in November, a significant increase from 4.6% in October. Of respondents, 18.3% report that IT professionals are plentiful, down from 24.5% a month earlier.

INTERNET BUDGETS AND BUSINESS

Internet Revenues: Overall, panelists expect to generate 12.0% of their revenue from Internet activity (B2B2C) over the next 12 months, compared to 10.3% during the previous 12 months. This is down from last month's levels of 12.1% and 11.2%, respectively.

Internet Purchases. On average, during the next 12 months, panelists expect to purchase 24.5% of their materials, supplies and parts over the Internet, up from 20.9% over the past 12 months.

SPECIAL QUESTIONS

In the November poll, CIO’s were asked two special questions. The first question asked respondents what their overall view on IT was in 2004. Nearly half of CIOs viewed 2004 as an average year (48.9%), while 38.4% believe 2004 was a good year for IT. Very few panelists viewed 2004 as a terrible year (9.1%) or a great year (3.7%).

The second question focused on corporate plans for upgrading the PC installed base. Forty percent of respondents (40.6%), plan to upgrade their PC installed base in less than 3 years, while 42.0% are on a 3 to 4 year upgrade schedule. The remainder, (15.5%) have a current upgrade schedule of more than 4 years.

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, Oak Associates. The poll is proving to be an accurate indicator of technology spending trends. The latest poll was opened on Thursday, November 4, and closed on Thursday, November 11. 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 November poll, there were 220 responses with very large firms with over 5,000 employees representing 18% of the results. A broad cross-section of industries is represented, including technology services (13%), non-computer/communications related manufacturing (12%), finance (12%), state or local government (8%), health care (13%) and wholesale and retail distribution (6%).

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