IT Spending Projections Match 39 Month High Aging Infrastructure Seen As Key Factor Driving IT Spending

According to June's CIO Magazine Tech Poll(TM), IT budgets will increase 8.2% in the coming 12 months, equaling a 39 month poll high. When asked what factors will have the greatest impact on their IT spending plans in the next 12 months, CIOs cited the need to replace aging infrastructure (33.9%), which placed well ahead of inflation (13.8%), rising fuel prices (7.9%) and the War on Terrorism (6.7%). CIOs also reported good news for tech workers by projecting staff compensation would rise to a 30 month high of 4.6%.

"This month's numbers are encouraging, especially with computer hardware showing the highest number since the poll's inception" says Gary Beach, Group Publisher of CIO magazine. "It seems clear that the long overdue replacement of aging infrastructure which began last year has really taken hold."

"Our poll shows that the outlook for IT spending continues to improve at a steady pace led by more CIOs planning to spend on computers and storage systems," says Dr. Ed Yardeni, Chief Investment Strategist for Prudential Equity Group.

"The trend line growth in IT spending remains strong," says George Elling, Managing Director, Enterprise and PC Hardware Research for Deutsche Bank Securities. "However, I would like to see more evidence of confidence from the largest corporate CIOs."

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 June's poll, conducted from June 10-17, 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.(1) In June, the TFGI was 3.5, up from May and at the highest level this year. (Attached below are Tables 1 through 3 providing historical data and selected charts).

OVERALL IT BUDGET AND COSTS

During June 2004, the CIO Magazine Tech Poll panel projected IT budgets to grow by 8.2% over the next 12 months, higher than May levels of 7.8%. In addition, the panel reports IT budgets increased by an average of 6.5% over the previous 12 months, higher than 5.2% reported in the May poll and the highest result this year.(2)

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 June (from 43.8% in May). Those planning to decrease spending decreased slightly to 11.3% (from 11.9% in May).(3) Security software continues to be the strongest sector in the poll with roughly 58.3% of respondents planning to increase spending (an increase from 57.7% in May) while only 2.0% plan to decrease spending (down from 2.6% in May).

Computer Hardware. The outlook for Computer Hardware spending also increased month-to-month. Among the panelists, 55.7% plan to spend more, up from 53.2% in May, while 15.7% plan to cut spending, up from 13.8% of panelists in May.

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 June, up slightly from 4.1% in May, and up from 3.3% a year ago. Seven-point one percent (7.1%) of respondents report IT professionals were hard to find and retain, up from 6.7% last month and up from 5.1% a year ago.

INTERNET BUDGETS AND BUSINESS

Internet Revenues. Overall, panelists expect to generate 10.5% of their revenues from Internet activity (B2B2C) over the next 12 months, compared to 8.1% 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 21.4% of their materials, supplies and parts over the Internet, up from an estimated 18.2% over the past 12 months.

SPECIAL QUESTIONS

In June's poll, panelists were asked their views on Linux-based desktops, and if they had plans to deploy these PCs in their organizations. Of those polled, only 1.2% of panelists had begun Linux desktop deployments in a significant way, while 5.5% had initial deployments underway. They majority of respondents (66.5%) had no current plans to deploy Linux-based desktops, but 26.4% were exploring the possibility of deploying them.

A second question asked respondents which factors would most impact their 2005 IT budget plans. Of the 6 options, most reported that aging infrastructure was the most important factor (33.9%), while 33.1% cited none of the options as a factor. The other factors for 2005 IT budget plans included the war on terrorism (6.7% cited as a factor), inflation/interest rate hike (13.8%), rising energy prices (7.9%), and the presidential election (4.7%).

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 Equity Group. The poll is proving to be an accurate indicator of technology spending trends. The latest poll was opened on Thursday, June 10, and closed on Thursday, June 17. 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 June poll, there were 256 responses with very large firms with over 5,000 employees representing 17% of the results. A broad cross-section of industries is represented, including technology services (11%), non-computer/communications related manufacturing (13%), finance (9%), state or local government (6%), health care (12%) and wholesale and retail distribution (7%).

The complete June CIO Magazine Tech Poll can be found at http://www.cio.com/info/releases/0604techpoll_results.html. Previous poll results can be found at http://www.cio.com/info/releases.

(1) 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.