News

Small IT Spending Increases Expected in 2010

One quarter of budget spent on hardware

• By Anne Watkins
• 03/11/2010

Global IT expenditure is expected to increase slightly this year for the first time since 2008, with one third of CIOs planning to increase their budgets, according to a report released this week.

The report from Ovum indicates that IT spending is trending upward but most increases will be small -- between 1 percent and 5 percent. A majority of enterprises will continue to have flat budget growth, the report predicts, based on CIO responses.

There are positive notes in the survey of 529 IT decision-makers, but the report does not predict an IT spending recovery, according to author Rhonda Ascierto, a senior analyst at Ovum, part of the Datamonitor Group. "Despite improved global economic activity, persistent business uncertainty in 2010 will be mirrored by tepid IT budget increases," Ascierto said in an e-mail interview. "CIOs have become like sailors hunkered below decks after the storm has passed. They are not yet thinking about charting new courses."

To make its assessment, Ovum compared responses to a survey conducted in the second half of 2009 with responses from 2,192 IT decision-makers in similar survey conducted in the second half of 2007. In addition, Ovum used its surveys of IT decision-makers in the full years of 2007, 2008 and 2009, which had 3,314, 3,130 and 1,745 respondents, respectively. All were global surveys, and respondents were from various industries.

Respondents were asked how their IT budget had changed in 2009 and how it was expected to change in 2010. Those who expect to see a flat budget in 2010 constituted 42 percent of CIOs surveyed. In 2009, 40 percent of CIOs said their budgets were flat.

The study found that 33 percent of CIOs expect an increase in their IT budget in 2010. However, of that number, 23 percent predict only a slight increase of between 1 and 5 percent. In comparison, in 2009, 26 percent of respondents actually saw their budgets increase. Those CIOs predicting a decrease in their IT budgets in 2010 numbered 26 percent in the report. In 2009, 34 percent of respondents said they saw their budgets actually decrease.

Ascierto noted that the percentage of significant increases in IT spending (6 percent or more) remains virtually unchanged (9 percent in 2009 and an expected 10 percent in 2010). "IT budgets were mostly flat when the economy was either rosy, jittery or in full-blown crisis," Ascierto said. "This demonstrates that IT is no longer viewed as an easy target for spending cuts, as it once was."

Improvements in spending likely reflect the effect of deep budget cuts in 2008 and the first half of 2009, which left many IT departments operating at "bare-bones" capacity, Ascierto said.

Although the report's forecast is for increased spending, it may not translate into actual spending because the perception gap has widened over the last couple years. The difference between forecasted decreases and actual decreases more than doubled, from 7 percent in 2008 to 16 percent in 2009. The difference between forecasted increases and actual increases more than quadrupled, from 4 percent to 17 percent when comparing the same time periods.

"The extent to which IT budgetary expectations were miscued in 2009 is likely to mar the collective psyche of IT decision-makers today," Ascierto said. "The confidence of CIOs in their ability to predict IT spending with a reasonable level of accuracy has been splintered, if not shattered."

Ovum predicts that most enterprises will spend one quarter of their IT budgets in 2010 on hardware. Small companies (fewer than 100 employees) likely will spend 35 percent on hardware. IT budget allocations for software were estimated at about 25 percent in the Ovum report.

A report released this week by International Data Corporation (IDC) made similar predictions -- and similar caveats. IDC's FutureScan indicators predict that U.S. IT spending will increase by 2.9 percent in the next 12 months. IDC formulated its "buyer intent" metric based on surveys of 400 to 500 U.S. CIOs and line-of-business executives who were asked about expectations for IT spending growth over the next 12 months.

IDC found that IT shipments are picking up, and companies are approving hardware refresh money as they realize the penalty for not upgrading or replenishing infrastructure.

John Gantz, IDC chief research officer and senior vice president, said that survey results were positive, giving room for optimism. "The respondents are usually quite conservative, so anything above zero is good news," he said in an e-mail interview. "It generally takes a while for an economic upswing to percolate into tangible IT projects."