IT Spending Projections Drop Sharply In May

FRAMINGHAM, MA – JUNE 1, 2005 – The spending outlook for May fell to the lowest level since November 2003, with CIO Magazine Tech Poll™ respondents predicting growth of 4.8% for the next 12 months versus April’s predicted growth rate of 7.9%. Predictions in all of the poll’s spending categories, except outsourced IT Services, declined month over month. However, the information technology (IT) labor market is showing continued improvement, with 14.8 % of respondents reporting IT labor as hard to find. This figure represents the highest number reporting IT labor as hard to find since October 2001.

“While this month’s projected growth rate may seem like a large drop, it is consistent with trends from the past six months,” says Gary Beach, Group Publisher of CXO Media Inc., the company that publishes CIO magazine. “The previous April poll number looks like an aberration, and this month’s number fits nicely with the measured growth we have been seeing. I believe we will continue to see steady growth in the coming months.”

“Results this month indicate chief information officers have become more cautious about computer hardware and storage spending. Less than half of CIOs predict spending increases in those two categories," says Chris Whitmore, Director, IT Hardware Research for Deutsche Bank Securities. "We continue to expect most areas of hardware to experience slower growth in 2005 versus 2004, as economic and cyclical factors act to dampen hardware spending this year.”

“There is not much to cheer about, with spending projections lower for virtually all categories except one,” adds Dr. Ed Yardeni, Chief Investment Strategist for Oak Associates.

The CIO Magazine Tech Poll provides technology and business executives, economists, and policymakers with a tool to gauge technology growth trends to assess the impact on the overall economy. Poll panelists answer questions on overall current and projected IT budgets on a monthly basis. Future spending plans for IT hardware, software, services and Internet initiatives are also covered. The results of the May’s poll, conducted from May 5-12, 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 May, the TFGI was 1.8, down from 3.2 in April (Attached below are Tables 1 through 3, providing historical data and selected charts).

OVERALL IT BUDGET AND COSTS

CIOs report that IT budgets increased by an average of 6.9% during the last 12 months, up from 5.9% last month. As reported above, in May the CIO Magazine Tech Poll panel projected IT budgets to grow by 4.8% during the next 12 months, versus 7.9% in April’s poll.

IT SECTORS

When asked about spending on eight specific IT categories, the average number of panelists who plan to increase spending during the next 12 months was 39.2% in May; down from 43.3% in April3. Those who plan to decrease spending were 15.1%, up from 14.0% last month. Security software remains the strongest sector in the poll, with 54.0% of respondents predicting increases in spending, down from 58.7% last month. Storage continues to be a priority, with 46.5% of respondents planning to increase spending in this category, down from 50.0% in the April Poll.

Computer Hardware: May results indicate 45.1% of panelists plan to increase spending on computer hardware (down from 49.2% in April), while 21.4% intend to decrease spending (versus 18.7% in April).

Compensation Costs and Labor Market Conditions: IT compensation costs (including salaries, benefits, and bonuses excluding stock options) increased an average of 4.4% in the 12 months ending May, down from 5.0% in April. Of the respondents, 14.4% report IT professionals are plentiful, while 14.8% reports IT professionals are hard to find.

INTERNET BUDGETS AND BUSINESS

Internet Revenues: Panelists expect to generate 13.8% of their revenue from Internet activity (B2B&B2C) during the next 12 months, compared to 11.9% during the previous 12 months.

Internet Purchases: During the next 12 months, panelists expect to purchase 23.4% of their materials, supplies and parts over the Internet, up from 20.2% over the past 12 months.

SPECIAL QUESTIONS

Q: What is the biggest barrier to your company’s use of IT?

A: The greatest number of respondents (41.2%) believes that their business’s inability to change is the largest barrier to their company’s use of IT, while 19.0% believes that their business leaders do not understand IT. A small percentage cited IT’s lack of understanding business (2.8%), while 37.0% responded: none of the above.

Q: When do you expect to begin aggressively shifting desktop PC purchase from single-core processor systems to dual-core processor systems?

A: The majority of CIOs (65.0%) believes that it is too early to say when they will begin the move towards dual core processor systems, while another 15.2% responded: they do not know. Of the 19.8% with a clear view, 1.4% expects to start in the second half of 2005, while 4.1% will start in 2006, with the remaining 14.3% making the shift in 2007 and beyond.

CIO MAGAZINE TECH POLL

The CIO Magazine Tech Poll was created by CIO magazine in August 2000 in association with leading economist Dr. Ed Yardeni, Chief Investment Strategist, Oak Associates. The poll is an accurate indicator of technology spending trends. The latest poll opened on Thursday, May 5, and closed on Thursday, May 12. 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 May poll, there were 217 responses with very large firms (over 5,000 employees) representing 20% of the results. A broad cross-section of industries is represented, including finance (13%), technology services (12%), health care (12%), non-computer/communications related manufacturing (11%), education (10%) and state or local government (8%).

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The complete May CIO Magazine Tech Poll can be found at http://peoplepolls.com/results/CIO/050505.asp?user=CIO

Previous poll results can be found at http://www.cio.com/info/releases.