March 29, 1999

A Closer Look:
IT Spending Won't Be Derailed Easily

ne place some jittery market analysts (and vendors with lower-than-expected earnings) place the blame for a downturn in technology stocks is on year 2000 problems. Some believe technology vendors' profits are weakening because too many customers are spending on fixing the Y2K problem instead of on buying more strategic technology. That may be true in some cases, but I think that's just an easy place to point the finger.

Last week, share prices of several major tech vendors, including Dell Computer, Hewlett-Packard, IBM, and SAP, fell over concerns about their earnings, which dragged the rest of the market down. Sure, Y2K is having an impact on how IT dollars are divvied up. Many companies are still in fix-or-test mode, and are spending less on new projects. But as we've found out before from you, the technology decision makers and business executives, technology is far too critical to a company's business to simply stop spending or stop innovating.

Some companies must change their spending plans for the rest of the year based on their level of preparedness. But 70% of the 100 IT managers we surveyed last week say their IT spending has increased over last year. To be fair, a little more than half say they're spending more on Y2K, or that remediation efforts are affecting their ability to complete other projects. But many are using their increased IT budgets to spend on Web sites and E-commerce, servers, PCs, and enterprise software (see story, p. 141). Just one in four expects any specific area of spending to decrease.

  Moreover, other factors are affecting these vendors' earnings. Pricing strategies are affecting PC companies. Dell admits it hasn't been pricing its products aggressively enough. Market saturation is affecting the ERP companies, who must look to vertical industries or small to midsize companies to expand their base.

  The need for IT to help create business opportunities and to stay competitive is keeping IT budgets up. For many IT managers, it would take something significant to cut their spending. The readers we surveyed said it would take a huge drop in the stock market to impact their IT spending and overall capital spending this year-a quarter of them said it would take a market-shattering crash of more than 20%. That's a pretty clear sign of just how important IT is to driving the business. Stephanie Stahl
Executive Editor
sstahl@cmp.com



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