IT Spending Will Rise ... Slowly

Don't expect a significant uptick in corporate IT spending anytime soon. That was the resounding message from Merrill Lynch's recent survey of Fortune 500 IT execs. Merrill Lynch projects a very modest 4.6% increase in IT budgets for 2002, and while that does top the current figure for 2001--a meager 2.6% increase--it's a far cry from the heyday of 2000, when there was a 12% surge.

But any comparison using 2000 budgetary figures makes about as much sense as comparing surviving dot-com stocks with their inflated 1999 valuations. Last year was a bit of an anomaly, since so much spending stemmed from Y2K anticipation and Net-boom fascination. "That was really a once-in-a-lifetime occurrence," says Steven Milunovich, technology strategist for Merrill Lynch.

Based on CIOs' survey feedback, Milunovich believes the best-case scenario for IT spending will be a second-quarter increase. Anything sooner is unlikely, he says. While most IT execs don't expect further budget cuts, some don't even have full access to their existing funds: Half of the survey respondents said their CFO wasn't permitting them to spend their entire approved budget. "I haven't heard of anything like that happening in the last 10 years," says Milunovich.

That means CIOs will have to kick their project-prioritizing skills into overdrive and focus on cost-saving technologies. "If companies aren't doing customer-relationship management or storage-area networks yet, I expect they'll probably defer it for a while," Milunovich says, even though such projects are strategically critical in the long term. That may sound a little bleak, but there's an upside, he says. As companies become more conservative with IT spending, vendors will start to sound even more like Monty Hall--as in, "Let's make a deal."