CXO

IT spending: Slow to recover, or not?

Most IT analysts have been predicting gloom and doom for the IT industry for the last couple of years. One firm now sees a few rays of light. Read these contrasting views to make up your own mind.


How much companies spend on IT is the prime indicator of the health of the IT market. For the past two years, nearly all analyst firms were reporting a flat or negative growth rate for IT spending. Now, some firms are reporting signs of an increase in spending. Others are sticking to a gloomy forecast. In this week's article, I'll take a look at the predictions of two analysts.

IDC sees some signs of a recovery
In a recent survey of nearly 1,000 CEOs and CIOs in 12 countries, IDC saw what it believes are the first signs of a recovery in IT spending. According to the results, 85 percent of the companies surveyed expect to maintain or increase their IT spending levels in 2003. But IDC expects that, "Economic stability and corporate profits remain key to an IT market rebound." IDC also found that many firms will be constantly reevaluating their IT spending plans, and an improvement in business confidence will result in a "solid recovery for IT suppliers."

IDC goes on to caution that, "IT suppliers should monitor economic and business confidence indicators for the early warning signs that IT spending will either exceed or be lower than current projections. Just as IT spending was severely disrupted in 2002 by wild card factors including WorldCom and Iraq, so it is that the outlook for 2003 remains clouded by similar uncertainty."

One surprising statistic from the survey is that CEOs are more optimistic that levels of IT spending will increase this year than their CIOs are. This makes you wonder who has a more realistic view of the state of the industry. Have CIOs been so thoroughly demoralized in recent years that they can't see signs of a recovery, or do they just understand the reality of the IT situation better than their CEOs?

To read more about this survey, read the full press release here.

Butler Group holds firm to "doom and gloom"
Butler Group is one of the powerhouse analyst firms in Europe; many people call it "the Gartner of Europe." Butler performs a series of regular interviews with executives and publishes a "Technology Sentiment Index." According to Butler, "As a lead indicator of the fortunes of the IT industry, the Technology Sentiment Index was showing no signs of improvement—quite the opposite."

Butler goes on to report that this is caused by "the enormous overprovision of goods, services, and skills in IT that were not created to address real need, but chronic overexpectation on all sides."

Butler believes that the situation is so bad that, "2003 is destined to be the year of the real shakeout” in the IT industry. It points out that many companies that barely made it through 2002 with the hopes of a sunnier 2003 will find their hopes dashed and will be forced to sell or shutter their businesses. In most industries, a shakeout like Butler predicts is usually good for the long-term health of the industry. But sticking with its "doom and gloom" outlook, Butler doesn't believe that will be the case in the IT industry. It fears that the shakeout will result in a lack of competitive pressure that will allow the big players to continue to offer shoddy products and services at inflated prices.

After writing off 2003, Butler believes that there is a glimmer of light at the end of the tunnel in 2004, but only if there is a "shakeout … in the thinking of top-level user management." It warns against the folly of board-level executives making enterprise-wide IT decisions, such as planning for large-scale ERP and CRM implementations, without listening to the real-world concerns of the IT department and the people who will actually be using these massive systems. (It claims that it has "lost count" of how many managers it has spoken to who despair of ever getting their ERP applications to work.) If this situation doesn't change in 2003, it believes that a recovery in 2004 is still unlikely.

Read more about Butler Group's views on the future of the IT market here.

If you'd like to know what other leading IT analyst firms think about the prospects for a recovery in IT spending, check out the IT Spending Hot Topics section of Analyst Views for nearly 100 free analyst reports on IT spending.

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