RealTime IT News

CIOs: Budgets 'Flattish' in '04

On the heels of several optimistic IT spending forecasts, new Merrill Lynch research concludes that many CIOs expect "flattish" budgets next year.

The financial giant's latest TechStrat Survey polled 75 U.S. and 25 European CIOs, examining a number of trends facing the industry.

"(IT budget) expectations declined to 1 percent from 3 percent in our last survey. With budgets being reviewed quarterly on average, spending plans can change," report author Steve Milunovich wrote. "More CIOs said budgets are likely to be revised down than up next year."

Asked for their IT priorities, CIOs pointed to trimming costs, security, application integration and compliance with new federal regulations such as Sarbanes-Oxley.

The research also showed demand for outsourcing services remains strong. About 70 percent of companies with offshore activities were pleased with the results. However, some CIOs acknowledged communications problems, a lack of quality and savings that were below expectations.

About 55 percent of CIOs expect to increase outsourcing next year, especially for applications development, help desk, HR and call centers.

The Merrill survey finds IBM and Accenture are investing in "transformational outsourcing," where the process is not just made more efficient but is changed.

Big Blue is also devoting resources to its "e-business on-demand" strategy, but the TechStrat Survey found that "interest in e-business on-demand is at an early stage. Only one-third have spoken with IBM about making their company responsive in real-time, and just 8 percent have hired IBM."

CIOs are also cautiously endorsing the upgrade to Microsoft's Office 2003. The TechStrat Survey found "only 35 percent said they will upgrade to Office 2003 in the next year. Microsoft's security issues are causing CIOs, especially in the United States, to consider open source desktop alternatives."

"Without a new killer app in Office, the upgrade cycle looks to be gradual until new XML-based technologies take hold in the broader market," the survey concluded.

Merrill Lynch sees enterprise storage spending growth "modestly" accelerating in 2004, with IBM and EMC gaining the most share.

"Although storage spending is well below previous growth levels, it's been one of the best areas in tech this year," Merrill said.

The research went on to say that "software growth looks better than the IT average, but we don't see the resurgence that is needed to drive the food chain." CIOs were optimistic about increased spending on security software, infrastructure and business intelligence, and less sanguine on spending on supply chain management and ERP.

Seventy-two percent of the CIOs surveyed said they see software vendors moving from license to subscription models.