IT budgets continue to have a rough go of it, although demand for technology is beginning to pick up, according to recent spending surveys.

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Execs share tips on 'investing' in bad times

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The surveys - from Gartner and Morgan Stanley - found growing optimism about an economic upswing in the next year and conclude that IT budgets, which faced drastic cuts over the past two years, might return to a growth pattern by the end of next year.

"Demand is increasing and so budgets are likely to catch up . . . although it could take six to 12 months to see the spending increase," says Al Case, senior vice president of product development at Gartner and co-author of the Gartner and SoundView Technology Group IT Spending & Demand Survey. "What [CTOs] are finding is that budgets are not growing as fast as the demand or requirement for new technology is increasing."

According to Case, the biggest areas for spending are in security, integration of Web applications, storage and PDAs, and wireless devices. Spending is expected to increase in 2003 on desktop and portable computers as companies look for upgrades, and on in-house application development as the need to integrate applications grows.

Gartner and SoundView surveyed 846 IT users and business executives responsible for more than $33 billion in spending during Gartner's Symposium/ITxpo last month. The survey found that U.S. companies increased IT spending just .36% this year compared with 2001, down from last year's estimate that budgets would be up by 1.5% this year. For next year, IT budgets are expect to stay flat, the survey says.

Financial services giant Morgan Stanley found a similar decline in IT budgets, with 32% of 225 CIOs surveyed revising their IT budgets downward since the beginning of the year. Thirty-eight percent acknowledged downgrading budget forecasts in August.

Morgan Stanley performs its CIO Survey Series 10 times per year, and the most recent findings show CIOs plan to spend less. Sixty-eight percent of respondents indicated they would spend the same or less on network equipment in 2003, compared with their spending this year. But 31% said spending would increase in 2003.

Similar to the Gartner survey, Morgan Stanley found that CIOs place application-integration security software and Windows 2000/XP upgrades as their top spending priorities in 2003.

As for the economic outlook, financial services firm Merrill Lynch found that 53% of 100 CIOs surveyed expects the economy to pick up by the end of the second quarter next year. But 47% said they don't expect the economic upturn to happen until the second half of 2003 or later. Ninety-five percent of those surveyed by Morgan Stanley said they expect the economy to recover in 2003, up from 52% who said the same in June. And 75% of Gartner/SoundView respondents said they expect a modest recovery in 2003.

In the meantime, IT budgets will remain tight.

"Things are getting tight with a big push to cut any and all operational expenses possible, without impacting service levels or major integration and [Health Insurance Portability and Accountability Act]-compliance initiatives," says Mark Hoffman, application systems architect at Tufts Health Plan in Waltham, Mass. "Management is looking at everything from who should have cell phones or DSL access, to organizational restructuring to more effectively deploy our soft assets to match our evolving business models.