IT Spending Rebounds in June According to CIO Magazine Tech Poll

FRAMINGHAM, MA – July 1, 2005 – The CIO Magazine Tech Poll™ results rebounded in June following a sharp decline in May. Chief information officers (CIO) now predict information technology (IT) spending will grow 6% during the next 12 months, versus 4.8% in May and 8.2% a year ago. Security spending remains the area where most CIOs (52.5%) expect to increase spending over the next 12 months, followed by storage (49.5%). The June special question asks panelists to compare IT spending now versus one year ago. A majority (51.1%) believe IT spending is stronger in 2005 than in 2004. One-in-five panelists (20.1%) view IT spending as weaker than a year ago and nearly 3-in-10 (28.8%) consider IT spending the same as a year ago.

"After a couple of months of volatility, the growth number seems to be holding steady at a very healthy 6%, "says Gary Beach, Group Publisher, CXO Media, Inc. "Given that 51% of CIOs see IT as stronger this year than 2004, I would say that overall the IT spending picture is looking good. While I am sure we will see some month-to-month fluctuations, I expect the growth rate to continue to be strong and steady."

“It was mildly encouraging to see a small up-tick in the CIOs' 12-month-ahead IT budget growth rate in June,” says Dr. Ed Yardeni, Chief Investment Strategist, Oak Associates. “But it was also mildly discouraging that the percent of them planning to increase spending remained relatively low at 39.1%.”

"Results this month indicate chief information officers have become more cautious about computer hardware spending and are shifting budgets to standards-based systems like Windows on x86," says Chris Whitmore, Director, IT Hardware Research for Deutsche Bank Securities. "Poll results this year continue to support our view that IT spending will slow in 2005 versus the strength we saw in 2004."

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 June poll, conducted from June 9-16, are 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 June, the TFGI was 2.2, up from 1.8 in May (Attached below are Tables 1 and 2, providing historical data and selected charts).

OVERALL IT BUDGET AND COSTS

The CIO Magazine Tech Poll panel projects IT budgets will grow by 6.0% over the next 12 months, versus 4.8% in May's poll. CIOs report that IT budgets increased by an average of 6.5% during the last 12 months, down from 6.9% last month.

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 39.1% in June, unchanged from May. Panelists who plan to decrease spending fell to 14.2%, down from 15.1% last month. Security software remains the strongest sector in the poll, with 52.5% of respondents predicting increases in spending, down from 54.0% last month. Storage is second with 49.5% of panelists planning to increase spending in this category, up from 46.5% in the May Poll.

Computer Hardware: June results indicate that 41.8% of panelists plan to increase spending on computer hardware (down from 45.1% in May), while 24.2% intend to decrease spending (versus 21.4% in May).

Compensation Costs and Labor Market Conditions: IT compensation costs (including salaries, benefits, and bonuses excluding stock options) increased an average of 5.3% in the 12 months ending in June, up from 4.4% in May. Of the respondents, 13.6% report that IT professionals are plentiful, while 17.4% report that IT professionals are hard to find.

INTERNET BUDGETS AND BUSINESS

Internet Revenues: Panelists expect to generate 12.6% of their revenue from Internet activity (B2B&B2C) over the next 12 months, compared to 10.6% during the previous 12 months.

Internet Purchases: On average, during the next 12 months, panelists expect to purchase 22.4% of their materials, supplies and parts over the Internet, up from 20.0% over the past 12 months.

SPECIAL QUESTIONS

Q: Compared to a year ago do you consider IT spending to be stronger, weaker or unchanged?

A) A slim majority (51.1%) believe IT spending is stronger this year than in 2004, while 28.8% believe there has been no change in IT spending year-over-year. The remaining 20.1% believe IT spending is weaker than last year.

Q: Over the next twelve months, what will majority of your hardware budget be spent on?

A) A large majority (62.0%) of CIOs expect to purchase x86 systems with Windows over the next 12 months. Of the remaining respondents, 11.4% expect to spend their IT budgets on x86 systems with Linux, while 10.3% expect to purchase UNIX systems. Only 2.2% will purchase new mainframes, while the remaining 14.1% will purchase some other type of system.

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 June 9th, and closed on June 16th. 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 185 responses with very large firms (over 5,000 employees) representing almost 20% of the results. A broad cross-section of industries is represented, including technology services (14%), finance (12%), non-computer/communications related manufacturing (11%), health care (10%), education (9%) and state or local government (9%).

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