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IT Spending Highest Since Pre-Y2K?

IT budgets as a percentage of revenue are growing at the fastest rate since the start of the build-up to Y2K  in 1997.

That's one of the findings in a report released this week by the research firm Computer Economics, based in Irvine, Calif. The "IT Spending, Staffing and Technology Trends" study, now in its 17th year of publication, surveys IT budgets in the U.S. and Canada

"We attribute the rise to companies depending more on technology to do their jobs," said Frank Scavo, president of Computer Economics. In 1997, the metric of IT spending reached 2.2 percent of revenue. It was 1.7 percent last year and 1.9 percent in 2004. For 2006, IT spending is estimated to be 2.0 percent of revenue.

The pre-Y2K build-up in IT spending was driven for very different reasons than the current uptick. Back then, IT shops were worried about potential glitches if/when older computers weren't able to properly recognize the year 2000. To head off the concern, companies interrupted their normal upgrade cycle and bought newer 'Y2K-ready' systems ahead of schedule.

This go around, part of the reason for the spending increase is much simpler: "Companies have more money to spend," Scavo told internetnews.com.

Increases in tech purchasing earlier this decade were driven by the dotcom boom, ecommerce, and hot Internet-related areas. Scavo said this year's growth is "more organic," though he notes one strong area of interest is virtualization as more companies look to consolidate servers.

Computer Economics identified three main areas of increased tech spending: hardware, software and outsourcing. Scavo said the median increase in IT staffing planned for this year is about two percent, about half the rate of increase in IT spending.

"Companies will buy stuff, but they just don't like to add full time staff they have to commit to and possibly have to layoff later," said Scavo. Computer Economics research shows more companies adding than decreasing staff, but the median staff hiring numbers overall are flat.

On the other hand, outsourcing continues to increase across industries. "The pendulum hasn't swung back any when it comes to outsourcing," said Scavo. "Anyone expecting a slow down there will be disappointed."

Computer Economics said a free 34-page executive summary of the report is available by contacting the company. The full report includes benchmarks for IT operational budgets, IT capital budgets, IT staffing, technology adoption rates, ROI, TCO and outsourcing utilization. Its price is $9,500.