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5/24/2002
05:34 PM
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IT Spending Edges Up, But All Aren't Optimistic

Like many tech companies, PFSweb Inc. has hit what it hopes is the financial bottom. The business-process outsourcing company has seen a meteoric falloff in business in the last two years, and this month its stock sank below the $1 minimum required for listing on Nasdaq. But CEO Mark Layton is smiling.

"The lead pipeline has improved," he says, and he's not alone in his optimism. A survey released last week shows quite a few high-tech CEOs feeling good about the future. New government statistics also show an upswing in IT spending and shipments. But the optimism is far from unanimous. IT vendors, including Sun Microsystems and Siebel Systems, report continued soft customer spending, and some analyst surveys indicate flat IT budgets for the rest of the year.

Among the optimistic news is a Deloitte & Touche survey of CEOs at 200 of the fastest-growing tech companies. Sixty-two percent of respondents are very confident about their companies' prospects for growth in the next 12 months. The same percentage of chief execs say the slowdown that has ravaged their industry is a healthy shakeout of less-viable companies that will lead to a more robust industry in 12 to 18 months.

While not making any claim about the future, the U.S. Commerce Department's gross domestic product data for the first quarter shows an uptick in IT investment. That number peaked in the first quarter of 2001 at a seasonally adjusted annualized rate of $620.9 billion adjusted for inflation, fell 8.6% to $567.4 billion in the fourth quarter, and inched up by 1.1% to $573.6 billion in the most recent quarter.

chartAlso last week, the Commerce Department said shipments of computer products rose 2.5% in April, reversing months of declines. And though new orders for computer products dipped by 0.3% in April, the decline was the smallest this year.

Meanwhile, the Nasdaq was down on May 24 after Sun said that its orders were behind the pace of its previous quarters. Separately, Siebel chairman and CEO Tom Siebel said that IT spending remains depressed.

IT spending continues to be flat, according to separate surveys by research firms Gartner and Giga Information Group. Gartner's survey of 369 IT professionals, conducted in conjunction with Goldman Sachs Group Inc., shows IT budgets remaining flat for the rest of the year. Despite the survey prediction, Gartner says fourth-quarter IT spending may ratchet up, increasing spending for the year by 1.5%. Companies underspent on IT in the first half, and an increase in the second half will offset that, senior VP Al Case says.

Signs of improvement are there, says William Baumol, an economics professor at New York University, but optimism may be premature. "We should keep our fingers crossed," he says. "But there have been false starts in the past, which were followed very rapidly by even bigger declines."

For PFSweb, the evidence is difficult to ignore. It's planning to add 100 employees to its staff of 750, which is down sharply from the 1,500 it employed in 1999. "We suffered tremendously," Layton says. Now, "we're seeing that business activity is picking up."

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