IT spending for 2004 is off to a strong start, according to two studies from Forrester Research, Inc. (Nasdaq: FORR). Forrester’s latest CIO Confidence Poll showed more optimistic outlooks among CIOs for their businesses, which translated into a higher proportion of CIOs expecting to outspend their IT budgets. At the same time, Forrester’s analysis of government data on IT investment and Q1 vendor revenues showed stronger-than-expected spending on computers and software, causing Forrester to raise its 2004 US IT spending forecast to 6 percent growth over 2003 levels.
Forrester’s quarterly CIO Confidence Poll is a survey of 115 CIOs at North American firms that measures the confidence in the health of their industries and IT spending. Responses to the second quarterly poll echoed the positive news found earlier.
- Forty-three percent of respondents consider their business climate to be strong or very strong, up from 33 percent this past quarter.
- The positive sentiments are validated with an uptick in IT spending — 55 percent of the CIOs expect spending to remain on budget during the next three quarters, and another 34 percent expect to outspend their budget — up from 25 percent in the previous quarter.
- Emerging technologies will benefit from this spending increase. Two-thirds of responding CIOs describe the research and application of emerging technologies as being key parts of their IT strategy, and 66 percent expect to increase the attention they pay to R&D.
When assessing the midyear health of IT spending, Forrester viewed two items as indicators that IT spending for the whole year will come in slightly stronger than expected: the strong Q1 financial reports of 20 IT vendors and the 16 percent increase in the first quarter in new business investments in IT as reported by the US Department of Commerce.
Forrester’s new forecast for IT spending for the remainder of 2004 shows:
- New investment for computers and communications equipment will continue to grow by 16 percent and 11 percent, respectively.
- Spending on computer hardware — using a three-year depreciation schedule — will lead IT growth with an increase of 11 percent over 2003.
- Spending on communications equipment — also on a depreciated basis — will be up 3 percent, as the low investment levels by carriers in 2002 offset the recent increases in investment.
- Operating systems, systems management, and security will pave the way for a 9 percent increase in software spending over the past year.
- IT outsourcing spending will grow 9 percent, while spending on IT consultants and full-time staff will stall out at 3 percent and 2 percent growth, respectively.
Compared with 2003 predictions, these spending increases will spread to a broader range of industries during the remainder of 2004. Forrester’s industry spending model indicates the following:
- Nine industries — healthcare, media, nonbank finance, consumer goods, information technology, insurance, pharmaceutical, professional services, and retail and distribution — are the most likely to increase IT spending because of above-average growth in revenues and profits during the past two quarters.
- Higher oil prices may continue to put pressure on the transportation industry, lowering its spending on IT.
- Budget deficits and higher spending for Iraq and Afghanistan are squeezing out increases in federal IT spending.
The research mentioned in this release, “CIO Confidence Poll: Q2 2004” and “Projected 2004 US IT Growth Edges Up To 6%,” is available to Forrester WholeView 2TM clients and can be found at www.forrester.com.