CIOs Forecast Flat Spending Growth,
but No Declines for 2009

Two new surveys of IT decision makers, CIOs and IT managers show that the spending forecast for 2009 is lower than usual but not dramatically lower.

CIOs are forecasting lower spending for 2009 but not dramatically lower. That's news that should cause both vendors and IT solution providers to breathe a sigh of relief.

While IT organizations increased cost-cutting in the third quarter of this year, going into 2009 most are not expecting to make big cuts in either IT operational spending or staffing levels, according to a survey of 159 North American IT organizations, conducted by Computer Economic, an IT research and advisory firm in Irvine, Calif.

Meanwhile, an October CIO survey conducted by Bernstein Research forecasts IT spending growth in 2009 of 0 percent to 3 percent, down from the typical levels of 3 percent to 5 percent. While author A.M. Sacconaghi Jr., a senior analyst at the firm, noted that that the levels were the lowest since his firm started the survey, the growth level remained flat to up.

The Computer Economics survey also found that one-quarter of respondents anticipated spending reductions of 3 percent, but that another one-quarter of respondents said their IT operational budgets would rise by at least 5 percent. And the survey indicated that at the median, IT organizations are forecasting flat spending growth.

Staffing levels looked stable to slightly up, according to the survey with several companies forecasting no change in headcount and a few forecasting a 5 percent growth in staffing levels. That is probably due to the conservative approach that companies have already taken in their IT staffing.

In terms of spending, 35 percent of IT organizations looked to reduce expenses between August and October of 2008, compared to just 11 percent that increased their IT spending plans during the same period.

The most frequently cited cost reductions taken over the last three months included cutting travel expenses at 55 percent, delaying the start of major projects at 44 percent and not filling open positions at 40 percent.

Other cost reduction measures included the following:

• Deferring equipment upgrades, 35 percent
• Cutting back on IT training, 26 percent
• Cutting meals/entertainment, 24 percent
• Cutting planned pay increases, 17 percent
• Canceling major projects, 16 percent
• Investigating outsourcing/offshoring, 15 percent
• Cutting IT staff hours, 4 percent
• Canceling software maintenance, 3 percent
• Canceling hardware maintenance, 3 percent.

Computer Economics noted that 16 percent of the respondents said they had taken no action to cut IT spending in response to economic conditions.

The firm also noted that nearly 37 percent of companies reported increasing staffing levels over the last 12 months while only 28 percent said they reduced headcount. Rather, companies have been leaving positions unfilled and cutting back on contractors.

Storage Remains a Bright Spot

The Bernstein Research report said that the firm expects "material downward revisions across the technology universe through at least January." The firm noted that the CIO survey indicated that with the exception of one bright spot, storage, that spending intentions for 2009 were lower than they had been six months ago across all product categories in hardware.

"If budgets are cut from current levels, spending on storage and server hardware appears safest, while consulting/IT services and headcount are most likely to be cut," Sacconaghi says in his report. "CIOs plan to spend less on PCs, printers and mainframes next year, and forecast only fractional increases in other server spend and applications software." Sacconaghi further notes that applications software spending experienced one of the biggest drops in spending intention since the firm's last survey.

Virtualization also remains strong, according to the report, with VMware well positioned, but competition is affecting pricing.

"Our October survey showed increased penetration of virtualization within x86 servers to be about 35 percent from 20 percent to 25 percent in recent surveys and materially below the 56 percent to 70 percent penetration we ultimately expect," says Sacconaghi in the report.

"Compared to our May survey, CIOs appear to be slightly more aggressive in looking at vendors besides VMware and/or using other vendors to extract pricing," he says. "That said, 82 percent of CIOs state that they use VMware only, and only one CIO has switched from VMware to another offering."