Business Confidence Index Falls But Indicators Positive for 2011: Report

While the economy component of the Index continues to drag on the overall reading, that trend may be turning around.

Unexpected shocks that roiled global markets also took their toll in the latest CompTIA IT Industry Business Confidence Index, but IT industry executives still expect business conditions to improve and sales growth to resume in 2011.

The index, based on a 100-point scale, fell by 5.1 points in the second quarter to 54.9. The results were derived from an online survey fielded to IT industry executives and professionals in late March 2011; 395 IT companies participated.

IT industry confidence was shaken by the same events that affected other segments of the economy-natural disasters in Japan; unrest in the Middle East; and rising prices in a number of areas, especially oil prices.

Looking ahead, IT industry executives expect the recent bout of uncertainty to abate and sales growth to resume. The index is projected to increase 5.2 percentage points over the next two quarters, making up the ground lost in the Q2 reading. Despite the Q2 dip, the report found IT industry sentiment is still on solid footing: The latest reading exceeds confidence levels for most of 2010.

"Confidence levels about the industry as a whole, and about individual companies, continue to reflect optimism in a strengthening economy," said Tim Herbert, vice president of research at CompTIA. "The net positive for the industry now stands at 62 percent, and for individual companies at 64 percent. Not long ago, both figures were closer to 50 percent."

Herbert said another positive sign is that hiring intent continues to move upward, increasing 2 percentage points to a Q2 rating of 42 percent.

"Hiring is a good indicator of confidence and positive economic momentum," Herbert said. "Only firms with solid business prospects are willing and able to expand their headcount."

The index is based on three metrics: opinions of the U.S. economy, the IT industry and one's company. While the economy component of the Index continues to drag on the overall reading, that trend may be turning around, according to Herbert. "The gap between the performance of the overall economy and IT industry appears to be closing slightly, which should be viewed positively by IT industry executives," he said.

Another gap in index results that's narrowing is the confidence level of small IT businesses, compared with their larger counterparts. Throughout the history of the index, the smallest IT firms (under $1 million in annual revenue) lagged behind medium-sized and larger firms in business confidence. "This difference has narrowed, however, a sign that the recovery has boosted prospects for businesses of all sizes," Herbert said.

Among all firms surveyed, the average revenue growth rate expectation for 2011 is 13 percent. The majority of companies will stay in their comfort zone to achieve that goal. Roughly three-fourths will turn to existing customers or new customers within the same vertical market for growth, and one-fifth plan to seek out growth in new vertical markets.

Expenditures by IT firms in many categories will increase or hold steady. Compared with the Q1 Index, some firms will slow the rate of increases in investments in new technology, new business lines and marketing/advertising initiatives. "This may be a situation where firms committed to the expenditures during Q1 and are now at the point of execution or waiting to see the return on investment," said Herbert.

However, IT industry executives voiced concern over the impact of new, unexpected shocks to the economy. This rating increased nine points from Q1, rising to a concern rate of 41 percent. Offsetting this negative, a number of other concerns subsided, including weak consumer demand, government regulation, competition from international firms, and labor prices and availability.