Tech Spending May Be Early Bellwether Of Recovery

Technology spending may be on the upswing. And action on Capitol Hill last week could give it an additional boost as a compromise economic-stimulus package is about to become law.

The House and Senate overwhelmingly approved legislation that would provide tax incentives for new capital expenditures, including business technology. The legislation, which President Bush says he'll sign, will let companies write off 30% of capital expenditures upfront and then depreciate the rest over a set period of time, often five years for IT purchases. Currently, businesses get no upfront write-off for capital expenditures.

"This is just playing catch-up with something that's long overdue," says Northern Illinois University finance professor James Johnson. "The life cycle of IT equipment gets shorter and shorter all the time." Twenty years ago, companies might use a mainframe for nine years; now, that figure is closer to three, he says.

Technology spending might already be edging up. "Recent evidence suggests that a recovery in at least some forms of high-tech investment could already be under way," Fed chairman Alan Greenspan told the Senate Committee on Banking, Housing, and Urban Affairs last week. Backing Greenspan's contention was a Commerce Department report that shows the value of new orders for computers rose a seasonally adjusted 4.8% from December to January, reversing a November-to-December decline of 5.3%. The value of computer shipments increased by 1.5% from December to January after declining 0.9% from November to December.

Increases in technology spending aren't limited to the United States. IBM said last week it has signed a five-year, $500 million deal to build an online infrastructure for Nestlé S.A. The Swiss food and beverage company is implementing mySAP.com and consolidating IT operations of 100 regional sites to five data centers in Australia, Germany, the United States, and Switzerland. IBM is building these centers, which will be based on IBM e-Servers, Enterprise Storage Servers, storage networks, and IBM's DB2 and Tivoli software.

"The deal is a good indication of what consumer products and retail players will be doing: IT overhauls that allow improvement to business processes," Gartner analyst Jeff Roster says. He adds that Nestlé is among the first in its market to make a bold IT move. "If you're a Nestlé competitor, you want your IT shop to be as good as Nestlé's," he says.

Nestlé, according to IBM, expects to realize $1.8 billion in savings by 2006 from the venture.