31 May 2002 Investment bank Merrill Lynch has released its latest report on technology spending trends in the US and Europe – and its findings are not encouraging.
Companies are continuing to cut technology budgets, spending less on new systems than anticipated at the start of 2002. While Merrill analyst Steve Milunovich has forecast spending growth of 2%, more than a third of the 100 chief information officers (CIOs) surveyed said that their outlook had changed for the worse during the course of the year so far.
European CIOs were more optimistic than their US counterparts.
When budgets do pick up, the top spending priority for CIOs will be software, in particular, enterprise resource planning (ERP) software. Milunovich believes that the reason organisations place so much importance on ERP is because they regard it as a means of reducing costs.
After ERP, CIOs consider security and disaster recovery spending their second most important priorities, followed by customer relationship management (CRM), application integration and storage.
During the first quarter of 2002, many CIOs actually under spent, says Milunovich, who fears that the seasonal “flush” of technology spending that typically happens every fourth quarter may not materialise in 2002.
Many companies reported having more software licences than they needed, or “shelfware”, which they say will negatively affect their spending on software for the next twelve months at least. The worst offenders were Microsoft desktop products, Oracle databases and SAP ERP, according to the report.
Purchasing hardware is even less of a priority. Merrill Lynch says that the PC upgrade cycle has been extended by around 40 months, with most organisations putting off a major PC upgrade until 2003 – that in turn will affect Microsoft in terms of upgrades from Windows 98 to Windows XP, as well as upgrades to the Office applications suite.
In terms of project size, 60% of CIOs say that when spending does improve, it will be on modest projects, rather than large implementations.