Goldman Sachs: Corporate Tech Buying Is Heading Down

A major investment firm says expectations for corporate spending on technology are falling.
Investment firm Goldman Sachs on Wednesday said its latest survey of chief information officers showed expectations for corporate spending on technology were falling, indicating "all is not well in tech land."

Based on a late August poll of 100 CIOs, the New York firm said corporate tech spending for 2004 was headed for an increase of only 0.4 percent, compared with 2.3 percent based on a similar survey two months ago. Goldman Sachs polls CIOs regularly to track spending on information technology.

"Although we hesitate to conclude that 2004 spending will end the year as low as these latest projections indicate, the negative directional change is a clear signal that all is not well in tech land," Goldman Sachs analysts said in the report on IT budgets.

Tech spending for the year was expected to improve in the fourth quarter, which is usually a heavy buying period as CIOs look to spend their allotted dollars before the end of year. The investment firm said its "guess" was that tech spending for the year would range from 3 percent to 4 percent higher than last year.

Although next year's budgets won't be decided until the fourth quarter, CIOs' expectations for 2005 are also heading south. In August, CIOs expected an average budget increase of 1.8 percent next year, down from 3.6 percent in the July survey, Goldman Sachs said.

The survey-to-survey decline in spending for 2004 was the largest since April 2003, when uncertainties over the Iraqi war had cast a shadow over the entire economy.

"CIOs arguably have a clearer picture of tech spending today versus last year and, discouragingly, estimates are still coming down," Goldman Sachs said.

Although fewer CIOs expected to spend less than their budget target, software remained the area most likely to be cut.

"CIOs' current response suggests that application and infrastructure software could again be under pressure should budgets ultimately fall short of internal expectations," Goldman Sachs said.

Of the 22 percent who expected to spend less than their budget in the third quarter, more than 4 out of 10 said business applications would be an area of under-spending, and more than 3 out 10 cited infrastructure software as area expected to be cut.

The bad news on software follows on the heels of warnings in the summer from chipmakers, including Intel Corp. and Texas Instruments Inc. Both companies blamed excess inventory for their earnings warnings.

The CIOs, however, were more upbeat about long-term IT spending, which remained in the 5 percent to 6 percent range. CIOs expected long-term growth of 5.3 percent in the August survey, compared to 5.6 percent in July and 5.5 percent last year.

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