IT Spending Seen On Rise Again

IT spending is not only recovering, it is building a base that will power it to even higher levels in the coming months, according to a survey of more than 130,000 IT decision makers conducted by the Wendover Corp.

Several leading indicators in the Wendover-Global Insight IT Spending Index signal that the cyclical upturn in IT spending that got underway in the middle of last year is picking up momentum and is spreading. One harbinger of the future -- training -- is particularly strong in the report.

“Something's happening out there with training,” Larry Dillon, Wendover's CEO said Thursday. “People are getting ready to staff up and they are hiring. That means there's some pent-up demand.”

The quarterly report signals that 2004 will be strong in some hardware sectors -- it noted semiconductors and network equipment specifically -- but also in software and services. The Wendover-Global Insight index is pegged at 100 points in the fourth quarter of 1999 and quantifies 17 quarters since then.

“We pick up discretionary spending,” said Dillon, “-- how IT managers and CEOs feel about the future. It shows that CEO's are giving their IT guys money to buy more.”

At the top of the list with the biggest jump -- up 51 percent from the last quarter -- indicating future purchases is the ERP market. Dillon said that should translate in a few months into good news for companies like Oracle, SAP, PeopleSoft and SAS. He added that ERP markets tend to have a long lead time so he looks for ERP sales to be up considerably around the end of the year.

Observing that the index rating for IT hiring is up 50 percent over the previous year, Dillon noted that IT job hiring follows IT investments.

The index findings are being borne out by IT companies, too. At IBM's annual meeting earlier this week, Chairman Sam Palmisano told shareholders “We are very enthusiastic about our prospects,” adding that he believed an economic recovery is underway worldwide.

As for specific industry segments, Dillon said the utilities segment showed the biggest jump for anticipated IT spending -- up 160 percent in the index. The second largest jump was in communications, which was up 70 percent. The rising demand for consumer goods and services appear to be driving the wholesale and retail trade industries, which, the report stated, is showing “robust activity in acquiring new IT equipment and software.”

The health care industry, which has been mired in low IT investment in recent months, is also showing signs of a spending revival, according to the report. On the other hand, the IT real estate market, which had been enjoying heavy IT spending for several quarters, is down 19 percent in the index' basis points. At the bottom of the index -- the segment deemed to show the least near-term potential for IT investment -- is the “engineering, architecture, and accounting” sector.

The index measures the intentions of IT decision-makers planning to invest in new capital projects over the next six to nine months. The Wendover Corp. carries out and tabulates 133,000 annual surveys of IT decision-makers in some 80,000 corporations. Global Insight provides economic and financial coverage of various regions and industries.