January 2, 2004 12:47 PM PST

Poll: Modest boost in tech spending for 2004

Companies are predicting somewhat bigger information technology budgets this year, but they're unlikely to loosen the purse strings significantly, according to a new report.

CIO Magazine's latest Tech Poll, released Friday, says that on average, chief information officers plan to increase spending by 6 percent over the next 12 months. That's up from 4.2 percent in last month's poll.

"In the latest poll, fewer CIOs are saying that weak profits are holding back IT spending," Ed Yardeni, chief investment strategist for Prudential Equity Group, said in a statement. "In 2004, I predict that strong profits will boost spending."

The anticipation of improved tech spending in 2004 extends overseas. Mike Lynch, chief executive of U.K. information management company Autonomy, believes there will be a recovery in tech spending this year, albeit a modest one, as budgets continue to be tight.

"It looks like we can expect some form of recovery in 2004, but it will be very return-on-investment focused," Lynch said. Although budgets will be up, many large companies will try to keep hiring to a minimum to avoid too much overhead if the recovery takes longer than expected, he predicted.

Emerging technologies such as Wi-Fi will become omnipresent, but there is still a big question mark over whether anyone will make money from them, Lynch added. Even though there will be more money changing hands in the industry as a whole, software suppliers will continue to consolidate.

"Loss-making software companies will be consolidated out, and we will end the year with fewer, but stronger, software companies," Lynch said.

Analyst firms Soundview and Gartner point to a modest recovery over the next year with capital spending budgets beginning to grow again at a rate of around 1.6 percent. "The prior 'stall mode' has finally begun to give way to controlled spending," said Soundview technology strategist Arnie Berman.

But Berman added that the strict focus on return on investment that became the watchword for 2003 will continue well into this year, so for the largest companies this could translate into an IT budget that is "flat to down."

Although technology managers are more optimistic about their company's general performance, they are not convinced they'll get to reap any of the benefits, said Gartner.

ZDNet UK's Andrew Donoghue reported from London, and CNET News.com's Karen Southwick reported from San Francisco.


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