Study: Businesses Ready To Open Wallets For IT

Gartner's Technology Demand index shows that companies of all sizes are prepared to spend more on IT this year than they did in 2003.
After a year that saw them bank IT budgets, businesses of all sizes are poised to spend more in 2004, Gartner reported Friday.

According to the research firm's Technology Demand index, an ongoing poll of IT decision makers in small, midsize, and large public and private organizations, U.S. companies and government agencies spent less than they had budgeted during 2003. Considerably less, said David Hankin, senior VP and general manager at Gartner. December 2003's index hovered at a score of 77; 100 would indicate that businesses spent exactly what they had budgeted.

"Organizations were reluctant to part with unspent IT budget dollars throughout the last quarter of 2003," said Hankin. "There was no 'flush' of budget spending at the end of 2003." Low year-end spending was the rule across all technology sectors, all organizational sizes, and all vertical markets, he added--but that's going to change in 2004. For this year, Gartner is projecting a strong increase in IT demand across the board, through companies of all sizes and sectors.

"We're pretty sure now that [IT spending] is getting better," Haskin said, acknowledging that analysts' projections of increased technology spending have been something of a "cry wolf" for numerous quarters. "Spending will grow in 2004, if only because companies have stretched out their replacement cycles as far as they can go. They'll simply have to begin spending more aggressively to just stay where they are at this point."

Among the markets that should show the most growth in demand for IT products and services, Hankin highlighted government, health care, and the financial-services industry, all of which face demand for increased spending due to security concerns and regulatory compliance issues.

All segments of technology will see a boost in spending by businesses in 2004, Hankin said, but the reasons behind the increase will vary. In software, he anticipates that most of the higher spending levels will be used to maintain current software programs, not for purchasing new tools and applications, although new buys in the personal productivity and information management areas will likely play a part.

Other new spending will be channeled to existing enterprise software vendors' said Hankin, because many of them are putting pressure on customers to move to new versions and/or raising maintenance fees. "There's been some fairly aggressive discounting in software maintenance for some time," he said, "but prices have started to recover."

As an example, he cited SAP, half of whose nearly 20,000 customers were faced with the termination of standard application support by the end of 2003 or an option to extend support through 2004 for an additional 2% in maintenance fees.

Other major vendors have launched new editions of flagship lines during the second half of 2003 and are aggressively promoting the updates to existing customers. During last year, for instance, Microsoft rolled out new versions of Office, Windows Server, and Exchange.

Spending on hardware won't so much climb in dollar amounts--Hankin estimated that there the demand would be flat--but in unit sales. The reason: per-device price declines, which show no signs of pausing.

On the hardware front, mobile connectivity products will see an increase--handhelds and notebooks ready for wireless--while desktop and storage system spending looks like it will dip downward, he said.

But there's always a caveat, even in news about higher spending levels.

While the decision makers polled by Gartner are "optimistic about their ability to spend more money in 2004," Haskin said, "our own analysts don't see that translating into double-digit growth during the year." Instead, look for a year-to-year growth rate of around 4% to 4.4%. That's because companies have gotten used to spending below budgeted levels and they're skittish about changing that tactic, even if the economy warms up.

"This habit of spending at or below budget will remain the mindset of CIOs for some time to come," he said. "These are the people who went through the spending of Y2K, who went through the dot-com bubble. They'll continue to think that they'll get brownie points for spending below budgets."

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