Study Says War Shouldn't Mean Less IT Spending

Fewer than one of five CIOs say the Iraqi war will result in less IT spending, according to a survey of 75 American and 25 European technology executives by Merrill Lynch.

"Still," says Steven Milunovich, a Merrill Lynch first VP who wrote an analysis of the survey results, "that may be sufficient to cause back-end-loaded companies to miss earnings. Once the war ends, few users expect to accelerate spending, underscoring the structural problems that are the true cause of the downturn."

Other conclusions Merrill reached from the survey results:

Windows and Linux server demand looks solid, and even Unix appears to be holding its own. "Don't expect a mainframe renaissance," says Milunovich. Users are interested in increasing the variable portion of IT costs but aren't yet sold on utility computing. IBM's E-business on demand is in the lead, followed by Sun's N1 and Hewlett-Packard's UDC. CIOs prefer buying a solution from one company versus a partnership, which benefits IBM over Sun and HP. Interest in blade servers is relatively high, suggesting Dell may be incorrect in its belief that blades will be limited to 10% of the market.

The survey, conducted by Duke University and Financial Executives International for Merrill Lynch, was taken days before the war began and distributed to clients last week. Asked if IT spending would slow when the war starts, 17% of the CIOs replied yes. Only 10% said IT spending would accelerate from current levels if the war ended quickly.

Milunovich, in his analysis, says that the results are similar to an earlier survey in which 17% said the threat of war influenced their spending. "Although most CIOs claim to be unaffected," he says, "even 20% slowing could cause vendors to miss quarters."

A quick end to the war wouldn't help vendors' bottom lines because 90% of the CIOs don't expect increased IT spending when hostilities conclude. "There could be a catch-up of demand that was deferred," Milunovich says, "but the main point is that there are structural problems in the economy and technology aside from war."