IT Spending Highest Since Pre-Y2K

Jul 11, 2006

David Needle

IT budgets as a percentage of revenue are growing at the fastest rate since the start of the build-up to Y2K in 1997.

That's one of the findings in a report released this week by the research firm Computer Economics, based in Irvine, Calif. The "IT Spending, Staffing and Technology Trends" study, now in its 17th year of publication, surveys IT budgets in the U.S. and Canada

"We attribute the rise to companies depending more on technology to do their jobs," said Frank Scavo, president of Computer Economics. In 1997, the metric of IT spending reached 2.2 percent of revenue. It was 1.7 percent last year and 1.9 percent in 2004. For 2006, IT spending is estimated to be 2.0 percent of revenue.

The pre-Y2K build-up in IT spending was driven for very different reasons than the current uptick. Back then, IT shops were worried about potential glitches if/when older computers weren't able to properly recognize the year 2000. To head off the concern, companies interrupted their normal upgrade cycle and bought newer 'Y2K-ready' systems ahead of schedule.

This go around, part of the reason for the spending increase is much simpler: "Companies have more money to spend," Scavo told

Increases in tech purchasing earlier this decade were driven by the dotcom boom, ecommerce, and hot Internet-related areas. Scavo said this year's growth is "more organic," though he notes one strong area of interest is virtualization as more companies look to consolidate servers.

Computer Economics identified three main areas of increased tech spending: hardware, software and outsourcing. Scavo said the median increase in IT staffing planned for this year is about two percent, about half the rate of increase in IT spending.

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