No IT Spending Upturn in 2002

A Meta Group report on IT spending offers little hope for a rebound in corporate spending on technology next year.

An IT spending report released Tuesday offers little hope for a rebound in corporate spending on technology next year.

The Meta Group Inc. report instead projects that annual U.S. corporate IT spending will fall for the first time ever by between 2 percent and 5 percent in 2002. Spending among non-U.S. companies is expected to remain flat at 2001 levels.

The projected year-to-year decrease in IT spending is the first recorded since 1982, the first year in which Meta Group has data, said Howard Rubin, a Meta Group executive vice president and research fellow. Over the past 10 years, IT spending has averaged a 6 percent to 8 percent increase and reached a record high of 10 percent in 2000.

The trend is a reversal from 2001, when U.S. corporate IT increased spending 8 percent and non-U.S. companies increased spending 6 percent, according to the report "Worldwide IT Trends & Benchmark Report 2002." Meta estimated that IT spending increased 10 percent in 2000, the highest rate since the company began its spending survey.

"Weve gone from an exuberant technology economy to a highly reactive one," Rubin said.

The expected dropoff in spending has its roots in the faltering economy of this year. In a separate survey from earlier this year, Meta Group found that 50 percent of chief information officers have already adjusted their budgets in light of the poor economy.

Just as companies began pumping more money into technology as they watched stock prices inflate in the recent boom of years, they now are reacting almost as quickly to cut discretionary IT spending as the economy slows. Rubin said IT managers are focusing their budgets on core areas such as infrastructure development, data centers and operations as they push for reducing costs.

But, Rubin warned, such reactionary decisions could damage companies in the long term if they ignore the need to invest in innovative, not just core, technologies.

"Its a day trader mentality," Rubin said. "If you dont keep discretionary money out there and maintain some level of investment, then youre putting your company at risk."

The spending data, culled from a survey of 832 U.S. companies and another 1,500 worldwide, was collected before the Sept. 11 terrorist attacks on the World Trade Center and Pentagon. Since that tragedy, IT managers have tightened their spending plans even more.

In a survey one week after the attacks, 87 percent of the U.S. companies said they didnt plan to change their spending plans for 2002, while 13 percent planned to reduce spending another 5 percent to 10 percent. But the pessimism grew in the next survey on Sept. 26, two weeks after the attacks. By then, only 54 percent planned to make no changes in their IT spending while the remaining 46 percent were planning to cut spending by as much as 20 percent, Rubin said.

Meta Groups report, released annually, is based on data and survey responses from a database of 18,000 worldwide IT contacts. It also covers productivity of IT staff, IT salaries and turnover rates, and the popularity of various programming languages.