Anatomy of an IT Spending Comeback

The information technology industry is emerging from what many are callingthe worst downturn in the sector’s history. In an effort to weather the storm, many high-tech companies have cut prices and even introduced special financing deals to help move inventory and generate revenue.

But analysts see an upward trend on the horizon — especially as companies find themselves behind the eight-ball, technologically speaking, as a result of long-delayed upgrades. Last month, IDC said the worldwide IT industry will grow 5.8 percent in 2003, although growth in the United States will lag behind the rest of the global market. Another study conducted by Gartner Dataquest predicted IT spending will increase 6.2 percent in 2003.

“There’s pent-up demand for some things that are not, in the longer term, hot growth areas, but which will benefit from some short-term spending at least, because there’s a certain amount of infrastructure that needs to be updated,”Stephen Minton, IDC director of worldwide IT markets and strategies, told the E-Commerce Times.

The Near Future

Indeed, many companies have made broader cuts in their capital expenditure budgetsthan in their operating expenses. In other words, businesses have put infrastructure needs on the back burner for the past couple of years. They have avoided upgrading their networks or bandwidth and have delayed the purchase of new PCs and storage hardware.

When a spending comeback kicks into gear, that situation undoubtedly will change for the better, especially when enterprises begin to upgrade software and operating systems. “Once you start doing software upgrades, and you do it on aging desktops andnotebook PCs, especially as that stuff is completely depreciated, it’sprobably cheaper to just go to new machines,” Gartner senior vice president Al Case told the E-Commerce Times.

In addition, security is much higher on priority lists now than it was a year ortwo ago, so it is likely to be a well-funded area in any high-tech recovery.

The wireless infrastructure industry also may see revenue increases as companies move away from physically connecting computers, printers and other items with cables, instead choosing to use such technologies as 802.11 (WiFi) and Bluetooth. As this occurs, Case noted, investments in cabling and wires may be put on the back burner.

What Won’t Fly Off the Shelves

Cost pressures will not disappear overnight, although in the long run, stricter budgets could prove to be a positive development for CIOs and IT managers. “You’re going to see companies continue to strong-arm vendors for lower pricing,” Case noted. “We’re going to get much more effective about the way we maintain our infrastructure and our software. So the total cost of ownership will go down.”

As a result of the need to make tradeoffs, urgent infrastructure upgrades are likely to preclude implementation of new front-end solutions and adoption of applications like customer relationship management (CRM) — at least for the next few quarters. “That’s taking a lot of dollars away from the snazzy front-end stuff that companies still want to implement, but may have to put a little farther down in the pecking order,” IDC’s Minton said.

Longer-Term Spending

When companies start looking beyond 2003, though, they will start to look moreclosely at implementing CRM, e-commerce, e-business and sales managementpackages, among other offerings. IT consulting services also should start seeing increases after a year or two of negative growth.

“Really, you’re talking about companies going back to new products and newsolutions that have been on hold for the last year or two,” Minton noted. “You’re talking about all of the things that companies have already identified as having real benefits to their bottom line, either from a competitive point of view or from a cost-saving point of view.”

One thing both Case and Minton agree on is that there is no new killer app. “It’s more of companies going back to what everybody regarded as the hot areas back in 2000 and the beginning of 2001,” Minton said.

Controlling Spending

However, even loosened purse strings will not represent a panacea. Generally, CIOs and IT managers want to spend as much money on technology as they Can — but CEOs and CFOs often do not see the need to shell out significant amounts of capital for new IT products and services.

Overall, Case said he thinks a shift to more controlled IT spending is in the cards. “We go back and forth between some form of steering committee governance and not,” he said. “We oscillate back and forth between chargeback systems and not. I think you’re going to see a changing governance model towards steering committees and towards evaluations of IT investments.”

“The good thing for the industry is that the technical people — the CIOsand IT managers — do still understand the benefits and are still knockingon the doors of the people holding the budgets and trying to get the moneyto spend on these things,” IDC’s Minton added. “They’re still evangelizingwithin their own companies about the benefits of implementing thesetechnologies.”

1 Comment

  • I agree.
    In South America we are now seeing a very big push by the governments of Chile, Peru, Argentina and Brazil, encouraging business to implement e-commerce.
    In Chile, our company won a government funding contract, allowing all small and medium size companies to implement our B2B technologies with up to 50% of the implementation and training fees subsidized by the government.
    I believe in 2003 there will be a very big implementation push for e-commerce throughout the region.
    Christopher Lynch
    Directory Systems, Inc.

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