14 October 2002 Two-thirds of European CIOs expect their IT budgets to be flat or down in 2003, according to a survey by investment bank Merrill Lynch. This highlights a serious deterioration in markets conditions since July 2002 when 70% of European CIOs said they had budgets to fund additional IT activities.
Out of the 300 European CIOs surveyed, 14% said that their company would spend less on IT in 2003, while more than half said that their budget would be flat.
However, the survey did provide good news for some technology suppliers. Nearly half of CIOs said they would need to replace hardware systems or buy additional products next year, although an equal number reported that they had sufficient hardware capacity already.
In contrast, the outlook is gloomier for suppliers of enterprise software. For example, just over a third of companies have deployed customer relationship management (CRM) software. But of those that have not, more than four-fifths have no plans to buy a CRM suite over the next 12 months.
Meanwhile, the enterprise resource planning (ERP) software market is equally troubled. Merrill found that more than one-third of companies used ERP software from more than one vendor, but that many have put consolidation plans on hold. This will deprive suppliers, particularly the market leaders such as Oracle, SAP and PeopleSoft, of a vital source of revenues. More than three-quarters said they did not expect to begin consolidating their existing ERP suites in 2003.
On a more positive note, CIOs have used the spending downturn to extract price reductions from suppliers, especially providers of IT services. Nearly 60% said they had negotiated price reduction from their IT services supplier in 2002. Of these, 40% of CIOs said they had negotiated more than a 10% price cut, while 11% had managed a reduction of more than a quarter.
But current spending levels vary widely across different vertical industries. Only a fifth of CIOs in the manufacturing sector said their 2002 budget would be down on the previous year, but one-quarter of those in the finance services sector expected this to be the case. None of the telecoms companies surveyed said that they would spend more on IT in 2002 than in 2001.