IT Spending Projections Sink In Second Quarter

FRAMINGHAM, MA – JUNE 30, 2006 – Findings from the quarterly CIO Magazine Tech PollTM show IT spending projections decreased in April-June with CIOs predicting IT spending to increase by 6.9% over the next 12 months, down from 8.6% in January-March period. Quarter-over-quarter spending projections increased in computer hardware, telecom equipment, outsourced IT services, infrastructure software and security software. While overall spending predictions decreased, 54.9% of respondents cited “enabling business processes” as their top spending priority for FY07 budget planning followed by 25.0% reporting the priority was “improving IT performance.”

"Based on our latest poll, it appears that CIOs are planning for a lazy, hazy summer. Spending plans seem to be aimed more at maintenance than major expansion," says Dr. Ed Yardeni, Chief Investment Strategist for Oak Associates.

"With 12-month IT spending projections down this quarter, it's important to note CIOs’ FY07 budget priorities and the areas in which they are planning invest, " says Gary Beach, Publisher of CIO magazine. "Furthermore, technology companies with strong brands and consistent market presence should be happy to see that CIOs make much faster purchasing decisions when they are already familiar with the product. In fact, 78% of CIOs take less than six months to make a decision when they are familiar with the product vs. the 41% who take the same amount of time when they are unfamiliar with the product."

"While future spending expectations decreased modestly in April-June, results from the poll still suggest a healthy overall IT spending environment. Both computer hardware and storage continue to rank among the top three IT spending priorities among CIOs," says Chris Whitmore, Director, IT Hardware 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 to assess the impact on the overall economy. Poll panelists are asked to answer questions on current and projected IT budgets on a quarterly basis. Also covered is future spending plans for IT hardware, software, services and Internet initiatives. The results of the April-June poll, conducted from June 8-15th, 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 April-June the TFGI was 2.9, down from 3.8 in January-March (Attached below are Tables 1 through 3, providing historical data and selected charts).

overall it budget and costs

In the April-June Poll, panelists projected IT budgets to grow by 6.9% over the next 12 months, down from 8.6% in the January-March poll. In addition, CIOs report that IT budgets increased by an average of 6.9% over the last 12 months, down from 7.0% in the January-March poll.

it sectors

When asked about spending across eight specific IT categories, the average number of panelists who plan to increase spending over the next 12 months was 43.1% in April-June, down from 44.8% in January-March. Panelists who plan to decrease spending decreased to 12.7% from 13.8% in January-March. Within the IT spending categories, security software replaced storage systems as the top spending priority in the poll with 55.2% of respondents planning to increase spending in this segment (vs. 50.8% in January-March). Computer hardware took the second spot with 48.1% of respondents planning increased spending (vs. 48.0% in January-March) and storage systems placed third with 46.1% of respondents planning to increase spending in this category (vs. 56.7% in January-March).

Computer Hardware: April-June results indicate that 48.1% of panelists plan to increase spending on computer hardware (up from 48.0% in January-March), while 14.4% intend to decrease spending (vs. 12.8% in January-March).

Compensation Costs and Labor Market Conditions: IT compensation costs (including salaries, benefits, and bonuses excluding stock options) increased an average of 4.8% in the 12 months ending June, down from 6.6% in the 12 months ending March. The supply of labor remained essentially unchanged with 6.0% of the respondents reporting IT labor was ‘plentiful’ (vs. 5.0% in January-March), 64.3% cited IT labor was ‘available’ (vs. 66.5% in January-March) and 25.8% report that IT professionals were ‘hard to find’ (vs. 26.3% in January-March).

Special Questions: This quarter’s poll includes multiple special questions. The first question focuses on the top spending priorities for FY07 budget planning where 54.9% of respondents cited “enabling business processes” as their top priority, followed by “improving IT performance” (25.0%), “business innovation” (13.6%) and “cost reduction” (6.5%).

The second question focuses on whether "Web 2.0" (industry term to describe how the web is being used post boom to drive business and shape society) is a promising business model or marketing hype. The majority of respondents (56.5%) believe the concept is ‘a little of both’, followed by 19.6% of respondents citing ‘marketing hype.” Only 8.7% believe Web 2.0 is a “promising new business model” with 15.2% saying they’re “unsure.”

The final questions address the length of time in the purchase cycle for enterprise hardware/software products and how familiarity with the products impacts that cycle. In the case where CIO respondents are familiar with the product, 78.3% make a decision in less than six months (13.6% of respondents take less than one month, 33.7% take 1-3 months, 31.0% take 3-6 months, 9.8% take 6-9 months, 3.8% take 9-12 months, 5.4% take a year or longer and 2.7% are unsure.) On the flip side, in the case where respondents were NOT familiar with the product, only 41.3% are able to make a decision in under six months (1.6% take less than a month, 12.5% take 1-3months, 27.2% take 3-6 months, 25.5% take 6-9 months, 13.6% take 9-12 months, 13.0% take a year or longer and 6.5% are unsure).

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 and serves as an accurate indicator of technology spending trends. The latest poll opened on Thursday, June 8th, and closed on Thursday, June 15th. 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 184 responses with large firms (1,000-5,000 employees) representing almost 30% of the results. A broad cross-section of industries is represented, including finance (16%), state or local government (9%), education (9%), health care (9%), technology services (9%), and non-computer/communications related manufacturing (14%).

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The complete June 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%.

Table 1: CIO Magazine Tech Poll™ – Summary Results 2006

Summary Results – 2006 Mar June

1. CIO Magazine Technology Growth Indicators

Tech Future Growth Index* 3.8 2.9

2. IT budget (% increase)**

Past 12 months 7.0 6.9

Next 12 months 8.6 6.9

IT Future Spending

3. Computer Hardware

Increase 48.0 48.1

Decrease 12.8 14.4

Unchanged 39.1 37.6

4. Data Networking Equipment

Increase 48.9 44.8

Decrease 14.0 15.8

Unchanged 36.0 39.3

5. Telecom Equipment

Increase 42.3 43.6

Decrease 20.0 14.5

Unchanged 36.0 40.2

6. Storage Systems