No spending upturn until mid-2003 – Merrill survey

CIOs are not going to loosen up their purse strings until at least the middle of next year, and will put the squeeze on IT vendors and providers in the meantime.

A survey by Merrill Lynch shows that a pick up in IT spending will only begin in the middle of next year. Around 31% of CIOs expect IT demand will pick up in the second quarter of 2002, with 20% predicting it in the following quarter.

However, as Merrill Lynch pointed out, aging equipment and a backlog of user requests may be a driver for increased spending, but companies have to have the cash to spare before they can spend it. CIOs also cited the economy and corporate profitability as deciding factors on spending. "Given our more cautious view," said Merrill Lynch, "we doubt a meaningful recovery will occur until 2004.

CIOs surveyed said they were keen to push down maintenance fees, were focused on outsourcing, and expected 2003 to be a tough year on vendors. If vendors had any comfort from the companies, it was that companies still believed IT could contribute to companies' competitive advantage. And while vendors are feeling the pressure, so are CIOs, with general agreement they were more stressed out than a year ago.

The long IT spending drought is also likely to change the landscape of the IT market the survey showed, with a number of key vendors shrinking in importance to individual CIOs. Microsoft was expected to grow in importance by 62% of CIOs, while Cisco was tipped by 48%, IBM by 45%, Oracle by 43% and Dell by 40%.

However, only 28% expected HP to grow in importance, with some users saying the company's merger with Compaq offered no differentiation. Looking at EMC, only 22% expected the company to become more important.

But it was Sun, EDS and SAP that garnered the lowest scores, 18%, 12% and 10% respectively. Sun's score was partly down to its niche status, with 40% of CIOs describing the company as not applicable. Users already standardized on Sun expected the company to become more important. EDS's image had been hurt by recent problems, said Merrill Lynch, with US CIOs "more down on EDS than Europeans." SAP also garnered a more negative response from Americans.

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