Tough Times in Techland as IT Budgets Snap (this weeks Barrons)
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By Mark Veverka
As readers over the past few years have come to expect from this corner of
Barron's, we tend to look at the darker side of techland -- even when things
are frothy, such as during the halcyon days of the bubble.
The froth is long gone now. But we still can't help it. Whenever we peer deep
into the heart of the metaphysical Silicon Valley, which stretches from San
Jose to Boston and Austin to Seattle, we just don't see a heck of a lot of
sunshine. This is especially true in the wake of September 11.
Thus, it comes as no surprise that the nation's top technology officers are now
balking at Information Technology purchases more than before that horrible
day -- as reported in the latest poll conducted by Deutsche Banc Alex.
Brown economist Ed Yardeni and CIO Magazine.
Prior to the September 11 attack, the poll suggested that tech spending might
have hit bottom in May and was beginning to rebound. But in the latest
survey, conducted between September 13 and September 20, that trend has
now been reversed. Chief information officers say they reacted to the terrorist
attacks and anticipated retaliatory strikes by slashing their projected IT
budgets, cutting the growth rate of corporate tech spending over the next 12
months to about 3.5%. That compares with growth rates in tech spending of
7.2% in August and 18% in September of 2000, according to the pollsters.
"There was a clear pattern of recovery. I think there was a growing sense that
we were hitting bottom and earnings were going to improve," Yardeni told
Barron's in an interview. "Not surprisingly, the CIOs lowered their
expectations over the next six months in response to the attacks."
For example, 42% of the CIOs indicated a willingness to increase spending
on computer hardware in August 2001. Now, as of September, only 30%
say they will spend more.
After two years of underspending on hardware, according to Yardeni, it was
time for many companies to upgrade desktop computers and servers. And he
wonders how much of the survey had been biased by its timing. That is,
because the poll came so immediately after the traumatic events, there might
have been some overreaction that could get corrected by the next
Yardeni/CIO poll in October.
"What we don't know was, how much of that was a knee-jerk reaction?"
Yardeni wonders. "CIOs don't necessarily make unilateral decisions. Nobody
changes their IT budgets overnight like that." Thus, the harsh turn for the
worse reflected in the latest poll "might soften before the end of the year, if it
hasn't already," the economist says.
The one bright spot is storage. With data-protection and recovery products
getting tested to the hilt by displaced financial companies, data storage
managed to avoid any dropoff in anticipated spending. About 48.5% of the
CIOs say they still intend to spend more on storage. "Storage is holding up
remarkably well," Yardeni says. |
