Tech Spending Could Jump 25%

The outlook for IT projects is improving, but clients are demanding more for their IT money, experts say.
Reviving sidelined IT projects, from infrastructure overhauls to security upgrades, technology executives are expected to increase spending through the end of next year -- though will likely continue to demand more in services and discounts.

That's the consensus of several IT analysts and industry executives interviewed by, as well as the findings in at least two corporate surveys.

''Across the board we are seeing our clients increasing their budgets, some by as much as 25 percent,'' said Craig Branning, CEO of Tallan, a Connecticut-based software development consultancy. ''But costs are also rising, producing rate pressure as they squeeze us as hard as they can. And, it's not only lower rates and more services they seek, but alternatives such as off-shore solutions.''

Looking ahead, not only will IT spending increase, but it must increase, said Laura DiDio, a senior analyst at the Yankee Group, a consulting company that tracks IT spending.

Essentially, many U.S. companies that made significant IT expenditures to address Y2k in the late 1990s were forced to derail subsequent upgrade cycles in the wake of the economic recession that followed the dot-com implosion.

''In terms of IT spending, we really hit rock bottom last year, so our polls indicate an average increase of 7 percent to 8 percent over the next 12 to 18 months,'' DiDio said. ''But some are ramping up spending as high as 25 percent; not because they want to, but because they have to. They simply can't afford to put off these major upgrades for much longer. Their infrastructure is porous, exposing them to security threats, and their hardware is just not adequate to support today's applications.''

Meanwhile, Merrill Lynch's TechStrat Survey, a regular report polling 75 U.S. and 25 European CIOs, bolsters DiDio's assessment.

''There is no killer app on the horizon, so industry growth is likely to be in the 5 to 7 percent range,'' Merrill's TechStrat reported. ''IBM argues that the killer 'app' is integration. CIOs did indicate in our last survey that this is more a period of integration than innovation.''

Equally telling, though, was the May CIO Magazine Tech Poll that showed IT spending projections rose to their second highest number in three years -- the expected 7.8 percent increase was the highest since 8.2 percent in January of 2004.

''In addition, the poll reports the number of respondents receiving salary increases over the past 12 months was higher than at any point in 2003,'' the report said. ''Technology spending projections also remain consistent for the fifth consecutive month.''

The result is that IT services companies on the front lines are seeing fewer window shoppers and more serious prospects.

''Before, we had a lot of people looking and requesting demonstrations, but not really buying, which is frustrating,'' said Bruce Bahlmann, new technologies product manager at Fine Point Technologies, of New York. ''Now, we are converting more prospects that come to us that are not just looking for information, but are pretty set on finding a solution.''

Still, just because they're spending does not mean they are doling out contracts as freely as in the late 1990s. If anything, interested IT decision-makers are now much more demanding.

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