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JUNE 9, 2004
By Erin Cockren America's CIOs Are Shopping Again A new executive survey sees big jumps in IT spending on everything from up-to-date PCs to spam-killing software For the past few years, tech spending has been subject of much debate, frustration, and hope. During the downturn, most companies cut information-technology budgets. And even as the economy improved over the past year, many corporations have been reluctant to start spending again. But that could be changing, according to a May poll conducted by CIO Magazine. The poll, which surveyed 315 IT execs from government agencies and the private sector, showed that CIOs expect their budgets to increase by an average of 7.8% in the next 12 months. That's a huge jump from the 5.2% growth in the past year -- and a major step up from CIOs' April projections of 6.6% growth. In May, CIOs' spending expectations were second only to their January projections, which saw an 8.2% boost in IT spending. Their May forecasts could prove more realistic. At the beginning of the year, when CIOs were the most optimistic in four years, the euphoria of having met the previous year's budgets for the first time in several years hadn't yet worn off, says Gary Beach, group publisher of CIO Magazine. But even with the projections toned down, tech vendors still have plenty to smile about. SECURITY FOCUS. The poll showed that government agencies and corporations need new IT technologies -- badly. Many have delayed spending for so long that their IT systems are breaking down. Warns Beach: "CIOs are pumping information into infrastructures that have become brittle." Recent regulations, such as the Sarbanes-Oxley Act, make disruptions more than irksome. To make certain that financial statements are accurate and current, the law requires public companies to vouch for their IT systems' reliability, and if they're not reliable, it holds CEOs personally responsible. Consequently, chief execs and corporate boards are giving CIOs their blessings to shop around for new, innovative, and reliable technologies. CIOs are zeroing in on security software and computer hardware. Threatened with new computer worms and facing a deluge of spam, companies are snapping up antivirus, antispam, spyware, e-mail scanning, and Web-filtering software, according to Chris Christensen, vice-president for security products at tech consultancy IDC. Of the CIOs polled, 57.7% said they planned to ramp up their spending on security software in the next 12 months. OUTSOURCING DECLINE. Demand for computer hardware is on the rise as well, but for a different reason. Many companies' PCs, normally replaced every three years, have already served for as long as five years -- and execs are discovering that it's often cheaper to buy new machines than fix old ones. In the next year, 53.2% of the CIOs plan to buy more computer hardware. So while consumers contributed most of the PC sales growth in the past few years, business spending should kick in soon, says James Jones, an analyst with Schwab Soundview Capital Markets. Surprisingly, a high percentage still plan to reduce their spending on seemingly hot areas: IT outsourcing and telecom gear. While 32.5% of CIOs say they'll increase outlays for on services like data entry and tech support, 18.3% plan to cut back on outsourcing in the next 12 months. Partly, that's because companies such as Wal-Mart (WMT ) have repeatedly expressed doubts over cost savings from outsourcing IT-related functions. Plus, many companies need to streamline their business processes before even thinking of outsourcing, says Jim Mendelson, an analyst at Schwab Soundview. As they consolidate their IT infrastructure, 17.7% of CIOs also plan to reduce their investments in telecom equipment in the next 12 months (40.2% plan to increase their spending). "In the 1990s, a lot of CIOs were burned by state-of-the art technologies that didn't work, so they're being cautious," says Ed Yardeni, chief investment strategist for Prudential Equity Group. "They don't have the inclination to jump at every new thing out there." DOWN THE LINE. In fact, CIOs have kept their spending expectations for both telecom and outsourcing relatively constant month over month -- but they've noticeably cooled to e-business software. In May, 9.3% of IT execs said they would cut their e-business software spending, vs. 8.4% in April. And only 32.5% wanted to increase their purchases, down from 42.1% in April. Partly, that's because CIOs need to upgrade their corporate infrastructure before upgrading the software, says Beach. Software for e-business might enjoy a sales bump further down the road, however. The CIOs admitted they hope to purchase 20.6% of their materials online, up from 16.8% in the previous year. They also receive 11% of profits from online sales, vs. 8.9% in the previous 12 months, according to the poll. And with an average of only 15% of polled organizations' business done online, room for growth is ample. Some CIOs will remain conservative in their spending. "The mood is positive, but, in reality, huge spending isn't there, [and many] companies are still in a cost-control mode," says Joanne Correia, vice-president at market consultancy Gartner. But at least the IT spending thaw has begun.  Cockren is an intern for BusinessWeek Online in New York Edited by Olga Kharif
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