CIO Spending Plans Remain on Track Seventy Percent To Spend On New Initiatives in 2003FRAMINGHAM, Mass., Jan. 1, 2003 -- December's CIO Magazine Tech Poll(TM) shows, "as 2002 comes to an end, CIOs are expressing cautious optimism that 2003 will show gradual improvement, with spending being spearheaded by a combination of new hardware and software initiatives," says George Elling, Managing Director, Enterprise and PC Hardware Research for Deutsche Bank Securities. "While CIOs continue to cite weak profits as the number one constraint to tech spending, next year's poll results should start to show better trends if profits do improve, as I expect they will," adds Dr. Ed Yardeni, Chief Investment Strategist for Prudential Securities Inc. "Furthermore, with an overwhelming majority [87%] of CIOs saying they have an application or project backlog, an alarming number of businesses are putting their operability and competitive advantage at risk. Concerns about competition and market share could serve as another driver to increased tech spending in 2003," says Gary Beach, Group Publisher of CIO magazine. 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 December's poll, conducted from December 5-12, are detailed below. CIO Magazine Technology Growth Indicators 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.(1) In December, the TFGI was 1.6, compared to 1.8 in November. (Table 1 providing historical data and selected charts can be found at http://www.cio.com/info/releases/010103_techpoll.html). Overall It Budget and Costs During December 2002, the CIO Magazine Tech Poll panel projected IT budgets to grow by 4.6% over the next 12 months, down modestly from November (5.1%). In addition, the panel reports IT budgets declined by an average of 0.1% over the previous 12 months, a slight improvement from the 0.5% decline reported in the November poll.(2) IT Sectors When asked about spending in eight specific IT categories, the average number of panelists planning to increase spending was essentially flat with November at 38.0%, while those planning to decrease spending declined slightly to 19.0% (from 22.0% in November)(3). Security software continues to be the strongest sector in the poll with roughly 53% of respondents planning to increase spending (a decrease from 56% in November) while only 5.1% plan to decrease spending (versus roughly 6.4% in November). Computer Hardware. The outlook for Computer Hardware spending improved sharply month-to-month. Among the panelists, 45.6% plan to spend more compared to 39.3% in November, with 20.4% planning to cut spending, versus 27.7% in November. Infrastructure Software. The percentage of CIOs planning to increase spending on infrastructure software was 33.7% in December, up from 32.6% in November. Those planning to decrease spending fell to 18.1% in December from 21.6% in November. Compensation Costs and Labor Market Conditions. IT compensation costs (including salaries, benefits, and bonuses excluding stock options) reportedly rose by an average of 2.1% in the 12 months ending in December, a slight decrease from November and down from 5.1% a year ago. Six-point-six percent (6.6%) of respondents report IT professionals were hard to find and retain, up notably from last month (5.0%), but down from 9.7% a year ago. Internet Budgets and Business Internet Budget Plans. CIO Magazine Tech Poll panelists report they expect to spend 13.4% of their IT budgets on developing business over the Internet (B2B2C) during the next 12 months. This is slightly above the 12.0% reported spent over the previous 12 months. Internet Revenues. Overall, panelists expect to generate 10.5% of their revenues from Internet activity (B2B2C) over the next 12 months, compared to 7.6% during the previous 12 months. This is slightly below last month's levels of 11.0% and 8.5%, respectively. Internet Purchases. On average, during the next 12 months, panelists expect to purchase 19.0% of their materials, supplies and parts over the Internet, up from an estimated 15.6% over the past 12 months. Special Questions Prior and Current Quarter Comparison. When asked to compare expected IT spending during the fourth quarter of 2002 to the third quarter of 2002, 26.3% say spending in the current quarter would be higher or significantly higher (slightly higher than November's 24.6% expectation), while 26.3% say it would be lower or significantly lower (modestly lower than November's 29.6% expectation). The remaining 47% have not changed spending plans (an increase from the expected 45% in November). (Table 2, presenting the results of the special questions, can be found at http://www.cio.com/info/releases/010103_techpoll.html). Pickup in IT Spending. Among panelists, 27.6% report IT spending either never slowed or has already picked up (slightly higher month-to-month), with 10.5% claiming to have already seen a spending pickup (vs. 11.3% in November). In addition, only 1.8% expect to see a pickup in 4Q02, while 24.3% expect to see a pickup in 1H03 (first half 2003) and 25.4% expect to see a pickup in 2H03. Further, an additional 15.3% expect to see a pickup beyond 2003. Spending Factors. Weak profits continue to have an adverse impact on tech spending. This was cited by 41.6% of the panelists as the primary factor affecting IT spending plans in 2002. Another 27.5% see "tight financial conditions" as the primary factor adversely affecting IT spending plans, and 23.4% said that spending might be weak because there is sufficient IT capacity. Key Spending Initiative in 2003. When asked about their key 2003 spending initiative, 7.5% of the panelists indicated new hardware, while 16.2% noted new software. An additional 46.7% indicated a combination of new hardware and new software. Maintenance spending appears to be less of a priority, with 22.5% of the panelists expecting to make existing hardware and software maintenance their top priority. CIO Magazine Tech Poll The CIO Magazine Tech Poll was created by CIO Magazine in August 2000 in association with Deutsche Bank Securities and Dr. Ed Yardeni, Chief Investment Strategist, Prudential Securities, Inc. The poll is proving to be an accurate indicator of technology spending trends. The latest poll was opened on Thursday, December 5, and closed on Thursday, December 12. 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 335 responses with 94.3% from North America. CIOs comprise 89% of the total, with CEOs, COOs and presidents accounting for 7.5% and "other" titles accounting for 3.6%. Very large firms with over 5,000 employees represent 17.6% of the results. A broad cross-section of industries is represented, including technology services (13%), non-computer/communications related manufacturing (11%), finance (12%), state or local government (7%), health care (9%) and wholesale and retail distribution (6%). The complete December CIO Magazine Tech Poll can be found at http://www.cio.com/info/releases/12techpoll_results.html. Previous poll results can be found at http://www.cio.com/info/releases. (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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