CFOs Stingy on IT Budgets

The Merrill Lynch survey of 50 U.S. and 15 European CIOs showed companies on both sides of the Atlantic will spend altogether just 4 percent more this year than last. European firms anticipate a 2 percent decline.

Only 20 percent expect spending to loosen up in the second half as chief financial officers remain "stingy about signing purchase orders," says Steven Milunovich, Merrill Lynch global technology strategist.

Merrill Lynch originally had forecast 9 percent growth, but Europe experienced a sharp falloff. "This appears to be a global IT recession; the question now is when will the U.S. pick up," Milunovich says.

Companies could muster a fourth-quarter catch-up effect since CIOs have a "use it or lose it" mentality, he adds. But buyers remain cautious.

CFOs, who are responsible for holding down costs while the economic slump has exerted pressure on revenues, are an impediment to spending, the analyst says. Economic stabilization would encourage those who control corporate purse strings to allow IT projects to go through.

Additionally, many companies may have an excess of computing capacity, he notes.

About one-third of the polled CIOs expect to accelerate PC spending next year, a tepid endorsement of the prevailing PC upgrade practice, Milunovich says.

PC upgrades cycle in at about three years, so demand may kick in next year. The last major upgrades came in preparation for the Year 2000 date changeover.

Users were mixed as to whether Microsoft's XP operating system (due out in October) might spur more hardware upgrades. But CIOs nixed the idea of Microsoft moving toward a subscription model because it would reduce user control and boost prices.

CIOs believe the Internet is a tool to Webify businesses but not as a stand-alone business model, the analyst says.

"Almost two-thirds see middleware becoming more important than the operating system. And almost 80 percent expect technology to be delivered as a service in the future," Milunovich says. CIOs rated IBM, Oracle, and BEA as the leading middleware vendors.

Linux, which the analyst says is a better server than desktop operating system, appears to be a greater threat to Sun than to Microsoft, the survey shows. "Moving applications from Unix to Linux isn't too difficult," Milunovich says. About 60 percent of European CIOs said they would buy Linux-based systems in the next 18 months, compared with only 25 percent of U.S. CIOs. The key will be the availability of applications, the analyst says.

Half of U.S. respondents said they were implementing wireless LANs, although no Europeans surveyed are doing so. Wireless LANs will dominate inside buildings, with 2.5G reigning outside. Security is a fixable concern with wireless LAN, and the technology offers low-cost points, high speeds, and can make use of the existing supply of Ethernet experts, Milunovich says.

Another recent survey showed about one-third of corporate planners and purchasing managers anticipate increased spending in equipment, software and new buildings over the next six months. A little over 40 percent believe capital spending will remain at its anemic rate, says the National Association for Business Economics, which conducted the study.

IT demand could rebound strongly when business conditions improve because many businesses believe they under-invested in technology in the three years before the economic slump, NABE said.