IT Spending Projections Fall Sharply In December

FRAMINGHAM, MA – January 3, 2005 – The CIO Magazine Tech Poll™ results for December report a sharp fall in information technology (IT) spending projections, with chief information officers (CIOs) predicting spending growth of 6.7% over the next 12 months, compared to last month’s 8.4%. After being on an upward trend throughout most of this year, results in December fell to the second lowest level in 2004. While spending growth projections declined in most categories, expectations for investments in security software and storage sectors continue to rise. Also, the IT job market continues its strong recovery with the number of panelists reporting IT labor as hard to find climbing to 13.6%—the highest in 38 months. Additionally, a special question in this month’s poll, asked visibility in IT spending, for the first quarter of 2005, 53.3 % of CIOs report they expect a moderate improvement in the overall IT market.

“2004 showed a great deal of promise” says Gary Beach, Group Publisher of CXO Media, the company that publishes CIO magazine. “We witnessed a very positive upswing in tech spending and hiring and what seems to be a reopening of CIOs’ wallets. In 2005, I expect we will see continued slow but steady growth. However, with so many potential obstacles such as energy prices, Sarbanes-Oxley and geopolitical uncertainty, it is unlikely we will see a bold transformation of IT in the coming year.”

“There was no budget flush at the end of this year according to the latest poll,” says Dr. Ed Yardeni, Chief Investment Strategist for Oak Associates. “Indeed, the latest results are surprisingly weak suggesting IT watchers need to look out for some downside surprises in the new year.”

"Despite this month’s decline, the improving economy continues to support technology spending, regardless of Sarbanes-Oxley pressure," says Brandt Sakakeeny, Director, Business and IT Services Research for Deutsche Bank Securities. "Given budget increases over the past 12 months, modest expectations for future IT expenditures, and an available IT labor supply, ROI-driven technology projects may continue through 2005.”

The CIO Magazine Tech Poll provides technology and business executives, economists, and policymakers with a tool to gauge technology growth trends to assess the impact on the overall economy. Poll panelists are asked to answer questions on overall current and projected IT budgets on a monthly basis. Also covered are future spending plans for IT hardware, software, services, and Internet initiatives. The results of December’s poll, conducted from December 2-9, are detailed below.


The CIO Magazine Tech Poll results are used to construct the CIO Magazine Tech Future Growth Index (TFGI) which projects IT activity over the next 12 months. In December, the TFGI was 2.7, down from 3.5 in November and the lowest result in 2004. (Attached below are Tables 1 through 3 providing historical data and selected charts.)


During December, the CIO Magazine Tech Poll panel projects IT budgets to grow by 6.7% over the next 12 months, versus 8.4% in November’s poll. CIOs also report that IT budgets increased by an average of 6.6% over the last 12 months, down from 9.1% last month.


When asked about spending in eight specific IT categories, the average number of panelists who plan to increase spending over the next 12 months fell to 42.7% in December, from 43.4% in November3. Those who plan to decrease spending also fell to 13.0%, down from 13.5% in November. Results for security software spending rose in this month’s poll, with 60.9% of respondents planning to increase spending, versus 53.2% in November. This segment continues to be the strongest sector in the poll. Spending on Storage Systems also continues to be a top priority, with 53.6% of respondents planning to increase spending in this category, up from 51.9% in November.

Computer Hardware: December results indicate that 45.7% of panelists plan to increase spending on computer hardware (down from 49.5% in November), while 16.5% intend to decrease spending (versus 17.4% in November).

Compensation Costs and Labor Market Conditions: IT compensation costs (including salaries, benefits, and bonuses excluding stock options) increased an average of 5.8% in the 12 months ending in December, up from 5.7% in November, and the highest result this year. Of respondents, 11.9% report IT professionals are plentiful, this year’s lowest result, while 13.6% report that IT professionals are hard to find, the highest result since October 2001 (14.6%).


Internet Revenues: Overall, panelists expect to generate 11.1% of their revenue from Internet activity (B2B2C) over the next 12 months, compared to 8.9% during the previous 12 months. This is down from last month's levels of 12.0% and 10.3%, respectively.

Internet Purchases: On average, during the next 12 months, panelists expect to purchase 22.0% of their materials, supplies and parts over the Internet, up from 18.9% over the past 12 months.


The December poll asks CIOs to comment on two special questions. The first question asks panelists to describe their visibility on technology spending for the first quarter of 2005. More than half (53.3%) of CIOs viewed the first quarter of 2005 as partly cloudy with a modest pick up ahead. Additionally, 16.9% viewed the first quarter as cloudy due to heightened political and financial risk. Of the panelists, 17.4% were positive and believe the future looks bright, while 9.1% were pessimistic, viewing 1Q05 as rainy with no pickup in sight.

The second question focuses on recent regulatory requirements. Panelists were asked what percent of their IT spending was being diverted from other IT assignments to Sarbanes-Oxley requirements. Of responses, 37.0% indicate that none of their resources have been diverted, while 36.6% reported only 0 to 9%. Of the remaining 26.4%, 9.5% report 10-20% of resources have been diverted, while 4.1% indicate more than 20% have been diverted, and the remaining 12.8% report the question is not applicable to their business.


The CIO Magazine Tech Poll was created by CIO magazine in August 2000 in association with well known economist Dr. Ed Yardeni, Chief Investment Strategist, Oak Associates. The poll is proving to be an accurate indicator of technology spending trends. The latest poll was opened on Thursday, December 2, and closed on Thursday, December 9. An invitation to respond to the poll was distributed via e-mail to a panel of more than 2,000 chief information officers and 3,000 randomly selected CIO readers who match the job function criteria “CIO.”

Demographics: In the December poll, there were 243 responses with very large firms (over 5,000 employees) representing 17.7% of the results. A broad cross-section of industries is represented, including technology services (10%), non-computer/communications related manufacturing (14%), finance (12%), state or local government (8%), health care (12%) and wholesale and retail distribution (7%).

The complete December CIO Magazine Tech Poll can be found at Previous poll results can be found at

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1 The TFGI is calculated by multiplying the projected growth rate of future IT budgets by the average percentage of respondents saying they plan to increase spending on eight unique categories: computer hardware, data networking equipment, telecom equipment, storage systems, outsourced IT services, infrastructure software, and eBusiness software.

2 Averages exclude responses over 100%.

3 Starting in January 2002, security software has been added to the group of IT sectors surveyed in the poll.


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