IT Spending Projections Drop To The Lowest Level In 14 Months

FRAMINGHAM, MA – FEBRUARY 1, 2005 – The CIO Magazine Tech Poll™ results for January dropped to the lowest level since November 2003 with chief information officers (CIOs) predicting spending growth of 5.4% over the next 12 months, compared to last month’s 6.7%. This marks the third consecutive month of declines since projections peaked at 8.7% growth in October 2004. While spending projections declined in most categories, spending expectations rose in data networking equipment and in outsourced IT services. CIOs also report that driving growth and innovation while managing costs represents the greatest challenge in 2005 (60%) followed by replacing infrastructure (13%).

“CIOs claim a perfect combination of lowered profit expectations, no compelling need to invest and the commodization of technology through lower hardware prices and open source software models have combined to dramatically reduce spending expectations for the coming 12 months” says Gary Beach, Group Publisher of CXO Media, the company that publishes CIO magazine. “For IT spending to continue to grow, CIOs will need to see both new ‘killer apps’ as well as a slowing of the rapid mergers and acquisitions that took place in the second half of 2004.”

“The slowing in 12-month forward tech spending plans during both December and now January suggests that only technology companies that are innovating and bringing new products to the market have a chance of prospering in 2005,” says Dr. Ed Yardeni, Chief Investment Strategist for Oak Associates. “Those who are not may need to merge with or acquire their competitors.”

“The January survey marks the third consecutive month where CIOs have lowered their expectations for future IT hardware spending increases," says Ben Lynch, Managing Director Semiconductor Research for Deutsche Bank Securities. “This is consistent, with other indicators, of an ongoing slowdown in hardware growth rates. However, on aggregate, over 40% of CIOs polled expect their budgets to expand over the next 12 months, more than twice the number who expect a contraction.”

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 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 January’s poll, conducted from January 6-13, 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 January, the TFGI was 2.1, down from 2.7 in December and the lowest result since December 2003. (Attached below are Tables 1 and 2 providing historical data and selected charts.)

overall it budget and costs

During January, the CIO Magazine Tech Poll panel projects IT budgets to grow by 5.4% over the next 12 months, versus 6.7% in December’s poll. CIOs also report that IT budgets increased by an average of 5.8% over the last 12 months, down from 6.6% last month.

it sectors

When asked about spending in eight specific IT categories, the average number of panelists who plan to increase spending over the next 12 months fell to 40.5% in January, from 42.7% in December3. Those who plan to decrease spending rose to 13.5%, up from 13.0% in December. Results for security software spending fell in this month’s poll, with 56.6% of respondents planning to increase spending, versus 60.9% in December. Despite the decline this month, security software continues to be the strongest sector in the poll. Spending on storage systems also continues to be a top priority, although results fell this month with 50.4% of respondents planning to increase spending in this category, down from 53.6% in December.

Computer Hardware: January results indicate that 43.3% of panelists plan to increase spending on computer hardware (down from 45.7% in December), while 17.3% intend to decrease spending (versus 16.5% in December).

Compensation Costs and Labor Market Conditions: IT compensation costs (including salaries, benefits, and bonuses excluding stock options) increased an average of 4.6% in the 12 months ending in January, down from 5.8% in December. Of respondents, 12.6% report that IT professionals are plentiful, while 12.6% report that IT professionals are hard to find.

internet budgets and business

Internet Revenues: Overall, panelists expect to generate 12.9% of their revenue from Internet activity (B2B2C) over the next 12 months, compared to 10.2% during the previous 12 months. This is down from last month's levels of 11.1% and 8.9%, respectively.

Internet Purchases: On average, during the next 12 months, panelists expect to purchase 23.1% of their materials, supplies and parts over the Internet, up from 20.0% over the past 12 months.


The January poll asks CIOs to comment on two special questions. The first asks CIO what their single largest IT-related challenge is currently. Over sixty percent (60.2%) said that driving growth and innovation while managing costs was the biggest challenge, while 13% said that the challenge was replacing outdated infrastructure. Others cited managing CXO expectations (9.1%), hiring and developing staff (8.3%) and maintaining or expanding IT budgets (6.7%) as challenges.

The second question focuses on the impact to desktop PC purchases due to Intel’s processor roadmap changes. Forty-seven percent expect little or no impact from Intel’s changes, while a little over a quarter of CIOs (26.3%) believe it will lengthen the PC upgrade period. Less than ten percent of CIOs viewed the changes as reducing the incentive to buy high-end desktop PCs (9.0%), or causing a shift to AMD-based systems (8.2%). Additionally, 9.4% were unsure of the impact.

cio magazine tech poll

The CIO Magazine Tech Poll was created by CIO magazine in August 2000 in association with well known economist 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, January 6, and closed on Thursday, January 13. 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 January poll, there were 255 responses with very large firms (over 5,000 employees) representing 19.6% 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 (9%), health care (10%) and education (8%).

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The complete January CIO Magazine Tech Poll can be found at Previous poll results can be found at

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.