Tech Spending Could Jump 25%

Reviving sidelined IT projects, from infrastructure overhauls to
security
upgrades, technology executives are expected to increase spending through the
end of
next year — though will likely continue to demand more in services and
discounts.

That’s the consensus of several IT analysts and industry executives
interviewed by internetnews.com, as well as the findings in at
least
two corporate surveys.

“Across the board we are seeing our clients increasing their budgets,
some
by as much as 25 percent,” said Craig Branning, CEO of Tallan, a
Connecticut-based software development consultancy. “But costs are also
rising, producing rate pressure as they squeeze us as hard as they can.
And,
it’s not only lower rates and more services they seek, but alternatives
such
as off-shore solutions.”

Looking ahead, not only will IT spending increase, but it must
increase, said Laura DiDio, a senior analyst at the Yankee Group, a
consulting company that tracks IT spending.

Essentially, many U.S. companies that made significant IT expenditures
to
address Y2k in the late 1990s were forced to derail subsequent upgrade
cycles in the wake of the economic recession that followed the dot-com
implosion.

“In terms of IT spending, we really hit rock bottom last year, so our
polls
indicate an average increase of 7 percent to 8 percent over the next 12
to
18 months,” DiDio said. “But some are ramping up spending as high as 25
percent; not because they want to, but because they have to. They
simply
can’t afford to put off these major upgrades for much longer. Their
infrastructure is porous, exposing them to security threats, and their
hardware is just not adequate to support today’s applications.”

Meanwhile, Merrill Lynch’s TechStrat Survey, a regular report polling
75
U.S. and 25 European CIOs, bolsters DiDio’s assessment.

“There is no killer app on the horizon, so industry growth is likely to
be
in the 5 to 7 percent range,” Merrill’s TechStrat reported. “IBM argues that the
killer ‘app’ is integration. CIOs did indicate in our last survey that
this
is more a period of integration than innovation.”

Equally telling, though, was the May CIO Magazine Tech Poll that showed IT spending projections rose to their second highest number in
three
years — the expected 7.8 percent increase was the highest since 8.2
percent
in January of 2004.

“In addition, the poll reports the number of respondents receiving
salary
increases over the past 12 months was higher than at any point in
2003,” the
report said. “Technology spending projections also remain consistent
for the
fifth consecutive month.”

The result is that IT services companies on the front lines are seeing fewer window shoppers and more serious prospects.

“Before, we had a lot of people looking and requesting
demonstrations,
but not really buying, which is frustrating,” said Bruce Bahlmann, new
technologies product manager at Fine Point Technologies, of New York.
“Now,
we are converting more prospects that come to us that are not just
looking
for information, but are pretty set on finding a solution.”

Still, just because they’re spending does not mean they are doling out
contracts as freely as in the late 1990s. If anything, interested IT
decision-makers are now much more demanding.

“They are very careful where and how investment in IT is made, looking
to
maximize efficiencies and productivity, better manage security risks,
capitalize on existing IT investments in infrastructure, and limit
compliance and regulatory risks,” said Jim Murphy, product marketing
manager
at SurfControl PLC, a Scotts Valley, Calif.-based vendor. “They are
willing
to spend, but spend where they can get the biggest impact.”

Not surprisingly, along with integration and upgrades, security
software
continues to be the strongest sector, leading CIO Magazine’s poll with
roughly 57.7 percent of respondents planning to increase spending (a decrease from 60 percent in April) while only 2.6 percent plan to decrease spending (roughly flat with April).

“It is not only a renewed interest and one-time purchases, but full
scale
deployments to launch within an 18-month time frame,” said Vimal Vaidya, founder, chairman, and CEO of RedCannon Security, a Fremont, Calif., based IT security outfit. “They want more of a long-term commitment, for us to open up to them on development plans and other incentives, which helps us establish more of a strategic partnership than traditional client relationship.”

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