Tech spending drops for sixth straight month

Technology spending growth declined for the sixth straight month, according to a new poll of CIOs and other professionals by CIO magazine and Yardeni.com (CIO is owned by the same parent company as the IDG News Service, International Data Group).

The poll received responses from 260 of the more than 4,100 people it was sent to and was conducted from May 17 to 24.

Of the respondents, 96% came from North America and 46% from firms with more than 1,000 employees. Only 4% of respondents said that IT budgets were likely to grow over the next 12 months, down from 7% in April and 19% in November 2000.

That spending in the tech sector was declining wasn't a surprise, but many had forecast that the drop would bottom out around the second quarter of 2001 and this is not happening, said Ed Yardeni, chief investment strategist at Deutsche Banc Alex.Brown, who worked on the poll.

Though it had been thought that the second quarter would begin to see a turnaround, "now there's a recognition that we may not be at rock bottom," he said. "But we're pretty close."

The largest single reason cited for the decline in overall IT spending was weak profits (37%), with tight financial conditions (26%) and sufficient existing technology (22%) following close behind.

"Things have deteriorated pretty quickly" when compared with spending projections in 2000, Yardeni said. As long as corporate profits continue to be weak, so too will IT spending, he said.

"(Technology spending) is just another form of capital spending driven by corporate profits," he said.

And there's no sure reason to think those conditions will brighten soon.

"Other than the basic optimism of humans, there's no reason this couldn't get worse," Yardeni said.

The poll asked about a number specific subsets of IT spending, and found that a few had also declined. Compensation costs, which had risen 8.8% in April and 14% in October of 2000, rose by only 6.3% in May. Also, future budgets for e-business also fell from last summer's near-33% of total budgets to 14% in May. Expected revenue from e-business over the next 12 months also dipped from the 24% of total revenue expected in August 2000 to under 12% in May.

Not all the areas are expected to decline, however. Spending on telecommunication equipment is expected to increase for 39% of respondents, data networking and communications equipment will see more money from 54% and computer hardware purchases will edge up slightly. Additionally, in the next year, 46% of respondents plan to increase e-business software spending and expect to purchase 17% of their materials and equipment over the Internet, up from 12% last year.

Even with the increases in these areas, Yardeni cautioned that they should not be given too much emphasis.

"It's only one month," and month-to-month figures may be volatile, he said.

Despite the uncertainty surrounding IT spending and corporate profits, Yardeni is optimistic, citing the U.S. Federal Reserve's attempts to bolster the economy.

And though we may not be there yet, "there will (eventually) be a recovery in technology," Yardeni said.

The IDG News Service is a Network World affiliate.