The optimism circulates mostly around replacement needs, such as computer hardware, security and infrastructure software. However, the good news is being balanced by weak profits and other unforeseen factors, according to a new survey administered by Deutsche Bank Securities and Dr. Ed Yardeni, Chief Investment Strategist, Prudential Securities and compiled by CIO Magazine Tech Poll.
A November survey of 301 responses of corporate information officers (95.7 percent from North America) estimate projected IT budgets should grow by 5.1 percent over the next 12 months, up modestly from October (4.4 percent). When asked about spending in eight specific IT categories, the average number of panelists planning to increase spending was up slightly from the previous month at 38.2 percent (versus 36.7 percent in October), while those planning to decrease spending increased slightly to 22.0 percent (from 20.4 percent in October).
"(This) poll is the second to last survey of 2002, which culminates a difficult year for IT companies," said Deutsche Bank Managing Director, Enterprise and PC Hardware Research George Elling. "Optimism early in the year for a year end budget flush has not materialized and pessimism regarding the industry's outlook remains rampant. However in this survey we note a glimmer of hope in that 85 percent of CIO's expect improved IT spending by the end of 2003. Additionally, IT budgets are expected to increase 5.1 percent over the next 12 months. Although we still remain cautious, these numbers gives us additional optimism that spending will resume in 2003."
Elling said investors should look toward this potential recovery, with particular focus on Sun Microsystems and EMC as turnaround plays and Hewlett-Packard and IBM as value plays.
The outlook for computer hardware spending improved modestly month-to-month. Among the panelists, 39.3 percent said they plan to spend more compared to 38.3 percent in October, with 27.7 percent planning to cut spending, versus 23.4 percent in October. The percentage of CIOs planning to increase spending on infrastructure software was 32.6 percent in November, down from 33.1 percent in October. Those planning to decrease spending rose from 17.8 percent in October to 21.6 percent in November.
On average, during the next 12 months, those responding to the poll expect to buy 19.3 percent of their materials, supplies and parts over the Internet, up from an estimated 15.7 percent over the past 12 months.
Panelists also report they expect to spend 13.4 percent of their IT budgets on developing business over the Internet (B2B2C) during the next 12 months. This is slightly above the 11.8 percent reported spent over the previous 12 months.
Despite the optimism, 41 percent of the panelists indicated that weak corporate profits are the number one negative factor impacting IT spending.
Other factors contributing to CIO's ulcers included "tight financial conditions," sufficient IT capacity, a flat hardware spending plans and IT professionals that were hard to find and retain.
Windows v. UNIX/Linux Debate Continues
In addition to spending forecasts, the survey also inquired to which operating system would dictate servers in the near future.
According to the survey, the battle between Windows and Linux/UNIX is still undecided, with 38.2 percent of respondents expecting Windows to dominate high-end corporations in 5 years, and 42.9 percent expecting Linux/UNIX.
"These results show that open-source and UNIX provide a credible option in the high end market, and it will be interesting to track these forecasts over the next year," said Elling.