Amid Cautious Optimism, Tech Spending Picks Up

By Dan Orzech

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Businesses in North America will spend 2.3 percent more on information technology this year than in 2001, according to a new study on IT spending by Forrester Research. The survey, of more than a thousand senior business and technology decision-makers at companies with annual revenues of $500 million or more, found a "cautiously optimistic outlook" on IT spending for the second half of the year, according to Forrester.

"IT budgets have stopped bleeding," says Tom Pohlmann, senior analyst at Forrester.

C-level executives are more willing now to invest in computer systems than they were at the beginning of the year, according to Forrester. Fifty five percent of respondents describe their executives as willing to "spend what it takes" on IT. That's up nearly twenty percent from the beginning of the year. "Executive commitment to IT is returning," Pohlmann says.

While hardware purchasing is on the rise -- sixty-two percent of firms plan on buying more servers, storage and networking gear during the second half of 2002 -- CIOs appear to be bringing application development in-house. Spending on outside consultants and contractors is expected to shrink by thirty-nine percent in the second half of the year.

Retail and consumer services firms will see the largest increases in IT spending, with budgets expected to grow by 7% or more over last year. Companies in the insurance and transportation industries were the most likely to plan on increasing IT spending in the second half of 2002.

Not surprisingly, given the extended slowdown in technology buying, IT budgets at high tech firms showed both the biggest drop from last year -- down 7 percent, on average -- and were the least likely to pick up anytime soon.

Spending plans also vary by company size: midsize firms -- those with annual revenues of less than $1 billion -- are more likely to raise budgets in the second half of the year, while larger firms are more likely to cut them.