IT Spending Projections Slump

FRAMINGHAM, MA – NOVEMBER 1, 2005 – After a few high points over the past thee months, projections from this month’s CIO Magazine Tech Poll dipped to the lowest level yet this year. Chief information officers (CIOs) are now predicting increases in IT spending of only 5.2% over the next 12 months, down from 9.3% in September. In addition, the number of CIOs expecting to increase IT spending in all categories declined, with only 37% of CIOs now expecting to increase spending this year.

“Our tech poll turned surprisingly weak in October,” says Dr. Ed Yardeni, Chief Investment Strategist for Oak Associates. “Soaring energy prices and the resulting economic uncertainty may be unsettling IT budget planners.”

"October results show a reversal in CIOs’ projected spending on IT hardware and storage," says Chris Whitmore, Director, IT Hardware Research for Deutsche Bank Securities. "The combination of high oil prices and declining consumer confidence may be causing a more cautious near-term spending outlook."

“While post hurricane economic jitters cooled spending forecasts this month, the big storm brewing for CIOs is the labor market,” says Gary Beach, Publisher of CIO magazine. “Nearly 30% of CIOs now claim IT labor is ‘hard to find and keep’.”

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 the October poll, conducted from October 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 October the TFGI was 1.8, down from 3.8 in September (Attached below are Tables 1 through 3, providing historical data and selected charts).

OVERALL IT BUDGET AND COSTS

During October, the CIO Magazine Tech Poll panel projects IT budgets to grow by 5.2% over the next 12 months, versus 9.3% in September’s poll. CIOs further report that IT budgets increased by an average of 6.7% over the last 12 months, down from 8.3% last month.

IT SECTORS

When asked about spending on eight specific IT categories, the average number of panelists who plan to increase spending over the next 12 months was 37.0% in October, down from 42.0% in September.3 Panelists who plan to decrease spending were down to 14.3%, from 14.7% last month. Security software returned this month as the strongest sector in the poll overtaking Storage with 47.9% of respondents planning to increase spending in this category, down from 51.6% in the September poll. Storage continued to be a priority and was placed third with 45.1% of respondents planning to increase spending in this category, down from 54.0% in September.

Computer Hardware: October results indicate that 45.7% of panelists plan to increase spending on computer hardware (down from 48.4% in September), while 15.2% intend to decrease spending (versus 19.5% in September).

Compensation Costs and Labor Market Conditions: IT compensation costs (including salaries, benefits, and bonuses excluding stock options) increased an average of 4.3% in the 12 months ending October, down from 6.4% in September. Of the respondents, 9.1% report that IT professionals are plentiful, while 27.9% report that IT professionals are hard to find.

INTERNET BUDGETS AND BUSINESS

Internet Revenues: Overall, panelists expect to generate 12.8% of their revenue from Internet activity (B2B2C) over the next 12 months, compared to 11.3% during the previous 12 months.

Internet Purchases: On average, during the next 12 months, panelists expect to purchase 23.7% of their materials, supplies and parts over the Internet, up from 21.4% over the past 12 months.

SPECIAL QUESTION

The October poll asked panelists to comment on how they would characterize their applications backlog as they worked to finalizing IT budget for 2006. Of the 86% that have an applications backlog, 40.9% have a significant backlog but are constrained by budgets. Of the remaining respondents with a backlog, 16.5% will step up spending in 2006 to address it, while 28.7% do not view their applications backlog as critical for planning. Of respondents, 14% do not have an applications backlog at this time.

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 opened on Thursday, October 6th, and closed on Thursday, October 13th. 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 October poll, there were 166 responses with very large firms (over 5,000 employees) representing almost 21% of the results. A broad cross-section of industries is represented, including finance (16%), education (11%), technology services (10%), state or local government (8%), retail and wholesale (8%) and non-computer/communications related manufacturing (13%).

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The complete October CIO Magazine Tech Poll can be found at http://peoplepolls.com/results/CIO/100605.asp?user=CIO

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 January 2002, security software has been added to the group of IT sectors surveyed in the poll.