Modest recovery on the way for IT spending

IT spending appears to be on the rise, though caution was still very much in the air at this week’s SG Cowen Fall Technology Conference.

The securities company highlighted its 31st annual event with a comprehensive survey of 675 sites, which indicated their IT spending will increase by an average of 3.5% next year.

While that’s the good news for the network industry, the bad news is that when surveyed in March, companies told SG Cowen they anticipated IT spending to rise 6% next year. Also, 30% of companies contacted for the new survey said their 2003 IT budgets had recently been cut.

Still, four in 10 respondents said their organizations are more optimistic now than at the start of the year, and industry executives seemed to echo that sentiment at this week’s event.

“Companies are beginning to take their foot off the brakes in certain industries around the world,” said Cisco CEO John Chambers. He revealed Wednesday that the company got more orders in August than it expected, though he warned  industry watchers not to overreact to this news.

Gordon Stitt, CEO of Cisco competitor Extreme Networks, was cautious in his assessment of the market, though he said the activity level among IT buyers seems to be higher.

 “People are talking to suppliers more than they were a year ago,” said Stitt, whose company is shooting to increase revenue about 10% in its 2004 fiscal year (which started in July) to $400 million.

Those surveyed by SG Cowen say they have varied needs going forward. About a third of respondents said they will need more network capacity over the next 12 months, and 43% said they’ll need more storage capacity. Disaster recovery, security and application integration projects are among those of the highest priority these days, they said.

Buying plans appear directed mainly at those vendors that are already strong. A higher percentage of customers said they will spend more with Microsoft over the next 12 months than with any other software company. IBM and Dell rated highest among computer hardware vendors. Cisco scored best among network equipment suppliers, with Dell – a relative newcomer in network gear – showing surprising strength (An SG Cowen analyst said the company has yet to confirm that Dell’s actual sales in networking match up with its “mindshare” ratings among customers.).

More on Extreme

Not blind to Cisco’s continued dominance in network equipment, Stitt said during a question-and-answer session with an SG Cowen analyst and audience members that Extreme is shooting to be the top choice for the 20% to 30% of network equipment buyers who don’t buy from Cisco. “The market wants an alternative,” he said, citing growing disenchantment among Cisco customers tired of paying high prices.

Extreme is banking heavily on new products, including wireless LAN technology that starts shipping in limited quantities this month. Stitt contrasted Extreme’s effort to integrate wireless and wireline network technologies vs. Cisco’s strategy, which he says involves keeping the technologies somewhat separate so as not to cannibalize its access point business. Stitt said he is hoping Extreme can use its wireless technology in a Trojan Horse fashion, that is, getting Cisco customers to buy into Extreme’s wireless products, then buying into its wireline products down the road.

Meanwhile, Extreme is watching its pennies (even as it searches for a CFO). The company cut its staff by 8% to 9% in June and shut down for a week heading into Labor Day to avoid having to make further job cuts, Stitt said.