Overall Tech Spending Slips

FRAMINGHAM, MA – DECEMBER 1, 2003 – According to November’s CIO Magazine Tech Poll™, chief information officers plan to increase tech spending +4.2% over the next 12 months, a decline from the 6.0% level projected in October. “The overall IT spending outlook remains unclear but we are encouraged that the outlook by large corporate CIOs has improved month to month,” says George Elling, Managing Director, Enterprise and PC Hardware Research for Deutsche Bank Securities.

“The improved spending activity of large companies is a positive trend,” says Gary Beach, Group Publisher of CIO magazine. “The new economy is dawning with CIOs continuing to embrace the Internet as their preferred purchasing channel.”

“While budget projections remain subdued for the next 12 months, it is possible that CIOs are getting more bang for their IT bucks given soaring productivity,” Dr. Ed Yardeni, Chief Investment Strategist for Prudential Equity Group.

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 November’s poll, conducted from November 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 November, the TFGI was 1.7, down from 2.3 in October. (Attached below are Tables 1 and 3 providing historical data and selected charts).

OVERALL IT BUDGET AND COSTS

During November 2003, the CIO Magazine Tech Poll panel projected IT budgets to grow by 4.2% over the next 12 months, down from the 6.0% level in October. In addition, the panel reports IT budgets increased by an average of 3.9% over the previous 12 months, a decline from the 4.5% increase reported in the October poll.

IT SECTORS

When asked about spending in eight specific IT categories, the average number of panelists planning to increase spending increased to 41.8% in November (from 40.5% in October). Those planning to decrease spending grew to 15.8% (from 14.2% in October)3. Security software continues to be the strongest sector in the poll with roughly 58.0% of respondents planning to increase spending (an increase from 57.0% in October) while only 5.1% plan to decrease spending (versus roughly 4.1% in October).

Computer Hardware. The outlook for Computer Hardware spending was mixed month-to-month. Among the panelists, 46.0% plan to spend more, up from 44.7% in October, while 21.5% plan to cut spending, up from the 16.4% level in October.

Infrastructure Software. The percentage of CIOs planning to increase spending on infrastructure software was 41.2% in November, up from 36.5% in October. Those planning to decrease spending fell to 12.0% in November from 14.9% in October.

Compensation Costs and Labor Market Conditions. IT compensation costs (including salaries, benefits, and bonuses excluding stock options) reportedly rose by an average of 2.4% in the 12 months ending in November, down from 3.1% in October and flat with a year ago. Six-point nine percent (6.9%) of respondents report IT professionals were hard to find and retain, up notably from 4.1% last month and from 5.0% a year ago.

INTERNET BUDGETS AND BUSINESS

Internet Budget Plans. CIO Magazine Tech Poll panelists report they expect to spend 14.0% of their IT budgets on developing business over the Internet (B2B2C) during the next 12 months. This is slightly above the 12.0% reported spent over the previous 12 months.

Internet Revenues. Overall, panelists expect to generate 11.5% of their revenues from Internet activity (B2B2C) over the next 12 months, compared to 9.5% during the previous 12 months. This is above last month's levels of 10.9% and 8.5%, respectively.

Internet Purchases. On average, during the next 12 months, panelists expect to purchase 24.4% of their materials, supplies and parts over the Internet, up from an estimated 20.3% over the past 12 months.

SPECIAL QUESTIONS

Prior and Current Quarter Comparison. When asked to compare expected IT spending during the fourth quarter of 2003 to the third quarter of 2003, 32.6% say spending in the current quarter would be higher or significantly higher, while 22.1% say it would be lower or significantly lower. The remaining 44.9% have not changed spending plans. (Table 2 presents the results of the special questions).

Pickup in IT Spending. Among panelists, 36.8% report IT spending either never slowed or has already picked up (vs. 40.4% in October), with 21.5% claiming to have already seen a spending pickup (vs. 23.5% in October). In addition, 2.9% expect to see a pickup in 4Q03 (versus 4.5% in October), while 25.1% expect to see a pickup in 1H04 (vs. 21.8% in October) and 17.8% expect to see a pickup in 2H04 (vs. 14.8% in October).

Spending Factors. Weak profits continue to have an adverse impact on tech spending. This was cited by 35.0% of the panelists as the primary factor affecting IT spending plans over the next 12 months. Another 31.4% see “tight financial conditions” as the primary factor adversely affecting IT spending plans, and 24.1% said that spending might be weak because there is sufficient IT capacity.

Visibility on Technology Spending for the Next Three Months. When asked how they would characterize their visibility on technology spending for the next three months, 18.5% of the panelists indicated that they saw no pick up in sight (versus 21.3% in October). Another 46.9% of the panelists reported that they see a modest pick up ahead (versus 46.7% in October), while 18.5% indicated a cloudy outlook due to heightened political and financial risk (versus 12.3% in October). Encouragingly, 14.2% of the panelists still indicated that the future looks bright (versus 18.9% in October).

Expect to Replace a Significant Number of PCs. When asked when they expect to replace a significant number of PCs, 42.7% of the panelists claimed to either currently be doing so or planning to do so within the next six months. Another 15.1% indicated that they expect to do so within the next six to 12 months, while 16.9% have no plans to do so at this time.

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, November 6, and closed on Thursday, November 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 November poll, there were 276 responses with 91% from North America. CIOs comprise 87% of the total, with CEOs, COOs and presidents accounting for 6% and “other” titles accounting for 7%. Very large firms with over 5,000 employees represent 15% of the results. A broad cross-section of industries is represented, including technology services (12%), non-computer/communications related manufacturing (12%), finance (12%), state or local government (9%), health care (10%) and wholesale and retail distribution (5%).

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The complete November CIO Magazine Tech Poll can be found at http://www.cio.com/info/releases/1103techpoll_results.html. Previous poll results can be found at http://www.cio.com/info/releases.

1The 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.

2Averages exclude responses over 100%.

3Starting in January 2002, Security Software has been added to the group of IT sectors surveyed in the Poll.