U.S. IT Budget Outlook Looks Good

By Allen Bernard

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IT budget increases for 2007 will probably be on par with 2006; around six percent, according to a new survey from IDC.

In spite of lingering concerns over the sustainability of economic growth and corporate profits, IT spending in 2006 was largely in line with expectations, said Stephen Minton, IDC's Worldwide IT Markets analyst.

"It's going to be similar to last year," said Minton. "The biggest difference obviously is we have the Windows Vista upgrade going on and because of that there's going to be a little bit of a push for PC shipments."

The results of the U.S. IT Budget Outlook 2007, released this month, support the view that IT spending should record another year of healthy growth in 2007, assuming the relatively benign set of macroeconomic assumptions that currently forms the mainstream view.

As a result, IDC currently predicts the U.S. IT market growth in the next 12 months will largely mirror the overall rate of expansion recorded in 2006, although growth will shift between various market sectors as strategies are realigned.

Key findings include:

  • Computer system upgrades continue to dominate a large proportion of IT spending, even though much of the previous pent-up demand was worked off in many firms during the past 24 months.
  • A plurality of respondents (57%) indicated their firms are likely to adopt Windows Vista gradually within two-to-three years. Significantly, however, more than one-quarter (27%) of firms in our survey did indicate they would upgrade to Vista this year.
  • Security was again the leading software-related spending priority and will likely continue to represent one of the fastest-growing subsectors. Also scoring highly, however, were database/data warehouse software and business intelligence.
  • Surveys conducted during the past year have underlined the increasing focus on business intelligence as a key driver for an increase in strategic IT spending. The prioritization of these software-related investment areas is another indicator of the value attached to information as a strategic asset.
  • The Big Picture

    In 2006, the U.S. economy, overall, proved resilient in the face of negative wild cards, including a rapid rise in oil prices during the first half of the year and a slowdown in the real estate market in the second half of the year.

    As a result, and with some pent-up demand for IT infrastructure upgrades still having an effect, overall IT investment increased by around six percent on the previous year.

    The outlook for 2007 is already clouded by a wide array of opinions and conflicting indicators, however. On the downside, some economists continue to predict a general cooling of growth in the next 12 months, largely relating to the correction in the U.S. housing market.

    Energy prices are still a wild card and could further depress consumer spending on other products and services. Corporate profits are widely expected to moderate as a result, and other wild cards could yet push the economy into a more negative scenario.The majority of economists, however, still expect relative stability in 2007 amid a soft landing for the housing market, and there are a number of upside drivers for IT investment increases.

    These include the launch of major Microsoft software upgrades — most notably Windows Vista — and other upgrade activity focusing on storage, networks, and back-office applications. "Overall (Vista) doesn’t have a huge net impact over the long term where it has a impact is some of the spending that was held off towards the end of last year is happen now in the first half of '07," said Minton.

    Security, business intelligence, regulatory compliance, and mobile data solutions remain at the forefront of business priorities. International firms will continue to invest in geographic expansion targeted at emerging markets in Asia, Latin America, and elsewhere.

    "There's a lot of promising things going on," concluded Minton. "CIOs are telling us they are doing a lot of interesting things. One of the things we didn't mention which came through pretty strongly in the survey, was the number of companies and CIOs telling us their experimenting pretty heavily with Web-based software applications as well.

    Clearly, this is an important trend. It's a small part of software now — it's something like three-or-four percent of software spend is on Web based software — but it's increasing rapidly."


    The study provides an analysis of a major survey of 205 firms in the United States, conducted in the final weeks of 2006. Survey respondents were asked to identify their IT budget and spending plans for the next 12 months, including prioritization of technology products and solutions.

    Surveys were conducted via a Web-based panel, with respondents qualified as having decision-making responsibility for IT investment. Respondents were collected according to quotas for CIOs/IT departments and company size classes (segmented by number of employees).