IT Spending Projections Resume Upward Momentum In October

FRAMINGHAM, MA – NOVEMBER 1, 2004 – After a slight dip in September, the CIO Magazine Tech Poll™ results this month indicate that CIO’s are predicting spending growth of 8.7% over the next 12 months, compared to last month’s 7.4%. Spending trends of CIO’s in October’s poll indicate that Security Software, Data Networking, and Computer Hardware are the top priorities for CIO’s. Also, when asked what government policy or action was most critical to the successful management of their IT programs, almost half the respondents (48.9 %) cited less regulation. This was well ahead of tax cuts (23.4 %), accelerated depreciation (16.4%), more regulation (7.2%) and more H1-B Visas (4.3%). The survey also found that nearly half of all respondents (48.5 %) have no plans to implement a voice over IP (VOIP) plan in the next 12 months.

"October's 8.7% forecast, the strongest October since 2000, suggests chief information officers are winning the 2005 budget battles, says Gary Beach, Group Publisher of CIO magazine.” After three years of operating in a do more with less' business environment, CIOs are approaching the coming year with 'do more, more quickly' marching orders. Also interesting is that for all the political talk about cutting taxes, CIOs would rather see less government regulation. Perhaps after the election our elected officials will take heed?”

“The recently enacted Homeland Investment Act reduced the tax rate on foreign repatriated earnings for one year,.” says Dr. Ed Yardeni, Chief Investment Strategist for Oak Associates. “This means that U.S. companies will have a huge windfall of cash to spend next year. Technology companies should benefit both in their sales and in the cash they will have to acquire other companies

“The up tick in 2005 IT spending expectations in the month of October versus September is encouraging although relatively consistent with the previous four months results. The survey results show that small and medium businesses have more aggressive IT spending intentions than larger enterprises, especially for security, storage and data networking solutions,” says Todd Raker, Director Infrastructure Software Research for Deutsche Bank Securities.

The CIO Magazine Tech Poll provides technology and business executives, economists, and policymakers with a tool to gauge technology growth trends and to assess their impact on the overall economy. The 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 October’s poll, conducted from October 7-18, 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 October, the TFGI was 3.7, an increase from previous 3.0. Excluding the dip in September, TFGI has been on a positive trend this year. (Attached below are Tables 1 through 3 providing historical data and selected charts.)


During October 2004, the CIO Magazine Tech Poll panel projected IT budgets to grow by 8.7% over the next 12 months, significantly higher than September’s 7.4% but slightly lower than the August figure of 8.9%. The panel also reports that IT budgets increased by an average of 8.2% over the previous 12 months, the highest result in the past two years.


When asked about spending in eight specific IT categories, the average number of panelists planning to increase spending rose to 45.1% in October (from 43.7% in September).3 Those planning to decrease spending fell to 12.9% (from 14.0% in September). Security software continues to be the strongest sector in the poll with roughly 63.5% of respondents planning to increase spending (down from 65.1% in September). We also observed that spending on Data Networking Equipment has increased significantly to 51.5% in October (up from 42.0% in September), making it the second spending priority of CIO’s in this month’s poll.

Computer Hardware:. October results showed that 51.3% of panelists plan to increase spending on Computer Hardware (up from 49.6% in September), while 14.6% intending to cut spending (versus 15.5% in September). Responses from panelists indicating no change to their Computer Hardware spending were flat.

Compensation Costs and Labor Market Conditions: IT compensation costs (including salaries, benefits, and bonuses excluding stock options) reportedly rose by an average of 4.6% in the 12 months ending in October, flat with September. Of respondents, 24.5% report that IT professionals are plentiful, up from 20.2% a month earlier.


Internet Revenues: Overall, panelists expect to generate 12.1% of their revenues from Internet activity (B2B2C) over the next 12 months, compared to 11.2% during the previous 12 months. This is up from last month's levels of 11.5% and 9.4%, respectively.

Internet Purchases: On average, during the next 12 months, panelists expect to purchase 25.1% of their materials, supplies and parts over the Internet, up from 22.4% over the past 12 months.


This month’s poll had two special questions for panelists. The first question focused on which government policy was the most critical to the successful management of CIO’s IT programs. Nearly half of the respondents cited “less regulation” as the most critical (48.9%), while other policies included tax cuts (23.4%), accelerated depreciation (16.2%), more regulation (7.2%) and more H-1B visas (4.3%).

The second question asked if organizations had plans to implement a voice over IP (VOIP) strategy in the next 12 months. Nearly half of the CIO’s polled indicated that they currently had no plans to implement a VOIP strategy (48.5%). The remaining half of respondents indicated that they had already installed a VOIP system (25.5%) or that they would implement one in the next 12 months (25.9%).


The CIO Magazine Tech Poll was created by CIO Magazine in August 2000 in association with well known economist Dr. Ed Yardeni, currently 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, October 7, and closed on Monday, October 18. 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 October poll, there were 241 responses with very large firms with over 5,000 employees representing 18% of the results. A broad cross-section of industries is represented, including technology services (14%), non-computer/communications related manufacturing (12%), finance (12%), state or local government (10%), health care (13%) and wholesale and retail distribution (5%).



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