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IT Spending to Rebound to Pre-Recession Levels

After holding its breath for most of the year, the supply chain may be able to breathe a collective sigh of relief. Following two years of zero growth, IT spending is expected to return to pre-recession levels, according to research and services company The Corporate Executive Board.

A poll of CIOs and IT managers at 133 Fortune 1000 companies indicates a 3.3 percent increase in IT operational budgets for 2011, the CEB reports.

IT spending is only one indicator of an industry rebound, but a welcome one nonetheless. Component makers and distributors have seen orders, shipments, and revenues climbing throughout the year, but there has also been a sense of uncertainty about a double-dip recession. Just recently, iSuppli forecast that semiconductor industry growth would soften in 2011. If IT budgets for 2011 are expected to grow, the pull-through effect will benefit the supply chain, from component makers through to IT and systems distributors.

For comparison, Forrester Research predicts IT spending next year will increase by 7.4 percent over 2010 levels, and Gartner Inc. expects global enterprise IT spending in 2011 to grow 4 percent year-over-year.

Moreover, according to CEB, IT investment will go into areas that foster better knowledge sharing, collaboration, and insight generation — areas that could benefit the supply chain indirectly.

“It's no coincidence that these capabilities often have the greatest impact in the areas organizations look to for growth, such as sales and marketing, customer service, and product innovation,” says Shvetank Shah, executive director of the Corporate Executive Board's Information Technology practice. Lack of visibility into end-customer forecasts is cited by the supply chain as one area that needs improvement. Another is collaboration, which works on a company-to-company level but not at a systemic level. “After two stagnant years, IT budgets are starting to reflect improvements in company performance,” Shah says.

Additional key findings of CEB's benchmarking research include:

  • Broad-based growth among companies. Encouragingly, the trend of increasing IT operational budgets is broad-based, as two-thirds of CIOs will increase expenditures in 2011. This compares starkly with forecasts of last year, when 75 percent of CIOs expected operating budgets to remain flat or decline.
  • Integrated IT services quickly becoming a reality. CIOs plan to integrate their traditionally siloed infrastructure and applications groups or merge IT into a cross-functional enterprise services organization. By 2012, 20 percent of organizations will be integrated into a multi-functional shared services organization, and an additional 35 percent of organizations will have integrated IT services.
  • IT capital budgets remaining flat in 2011. Two-thirds of the total IT budget will continue to be consumed by “keep-the-lights-on” maintenance or costs associated with regulatory compliance activities. IT capital budgets will remain flat in 2011, at 0.6 percent of revenue, mirroring the lack of growth IT organizations saw in the last three years. Although this is not as optimistic as operating budget forecasts, electronics distributors and EMS companies are the significant providers of maintenance, repair, and operations (MRO) components and post-manufacturing sales and service to the electronics and reseller industries.

Is your company breathing a sigh of relief yet?

17 comments on “IT Spending to Rebound to Pre-Recession Levels

  1. DataCrunch
    October 27, 2010

    Hi Barbara, I tend to agree with your post.  Over the last year and especially in the last three to six months I have seen an increase in IT spending, and a more significant interest in companies planning to spend on IT related projects.  This is good news for sure, but I would suggest a word of caution as well.  As I have seen an increase in spending and interest, these are more related to improving existing systems and processes that are already in place, rather than major capital investments on new large initiatives.  Major projects on the table that were put on hold are now starting to get realized, but in a more scaled back, focused approach and “if it’s not broken, don’t fix it” attitude.  All in all, the report and analysts’ predictions are definitely welcome news, but with unemployment still on the rise, I just hope it’s not a mirage.  There still seems to be a sense of uneasiness and uncertainty in the industry, even though spending is on the rise.      

  2. Barbara Jorgensen
    October 27, 2010

    Hi Dave,

    Yes, I guess you could say we buried the lead. The last graff of the ECB report  talked about operational vs. capital spending on IT. This (operational) is still good news for the back end of the supply chain, as distributors are almost the sole holders of EOL and MRO components/systems, and EMS do the past-sales warranty/support (as do systems distribs such as Arrow and Avnet.)

    As ECB, Gartner and Forrester all predict IT spending will go up, and IDG seems to be hinting at that, I'm a little more confident that this is an overall good sign.

     

     

  3. Ariella
    October 27, 2010

    Barbara, I do hope that the spending also translates into more jobs here in the US. So many IT people lost their jobs as development programs were scrapped or reassigned abroad to take advantage of cheap labor.  Even help desk jobs were diverted despite computer users' frustration with that situation.

  4. Barbara Jorgensen
    October 27, 2010

    Hi Ariella,

    Yes, you and Dave make a good point–one of the things that wasn't mentioned in the IT forecasts were jobs. Spending on hardware is always good news for the supply chain. Spending on process imrpovement (as ECB mentioned in its forecast) more often than not requires IT people. I'll keep an eye out for future such reports and if our readers see anything, forward it along! Job growth is still a crucial part of the whole recovery equation.

     

  5. Steve Saunders
    October 27, 2010

    Agree with Ariella. And assuming this does spur job growth where will that occur? US or overseas? And how long will it take for the growth in spending to produce a commensurate increase in jobs? These are questions that many readers of this site will want to hear answers to!

  6. AnalyzeThis
    October 27, 2010

    In my case, IT spending for next year will certainly increase. Too many projects and upgrades have been put off due to the not-wonderful economy. Continuing to delay on pushing forward on these initiatives would potentially really hurt the future of our business, at this point.

    However, I do also agree with what Dave mentioned in his post: many of our larger projects are either being scaled back or outright canceled. It's more about upgrading what we already have and making small improvements in a few high-priority areas.

    As far as job growth goes… that is hard to say. Doubt I'll be doing much hiring, there hasn't been that much turnover here because it's not like many people have departed to take better jobs elsewhere. I suppose the good news is that if I do need to hire, it should not be very difficult to fill those positions: there's plenty of talent out there looking for work.

  7. Steve Saunders
    October 27, 2010

    the company i work for has had a salary freeze for a while – is that the same at your place of work?

  8. AnalyzeThis
    October 27, 2010

    the company i work for has had a salary freeze for a while – is that the same at your place of work?

    Absolutely. Frozen since the start of 2009. And the outlook for 2011 doesn't look wonderful either, maybe if I'm lucky some of the better employees will be “rewarded” with a 5% bump… but that's probably the best one could hope for.

    Plans for 2011 are actually still TBD. Everyone involved realizes that it's probably not the best idea to keep salaries frozen this long.

  9. Barbara Jorgensen
    October 27, 2010

    I knew I saw something about this within the past few weeks. A UK firm reports the following:

    For the first time this year, IT support roles have taken over from IT manager jobs as the highest number represented on The IT Job Board (http://www.theitjobboard.co.uk ). That's the finding from the company's latest Skills in Demand report (September 2010).

    As per previous reports, IT support and IT manager roles continue to represent the highest proportion of jobs on The IT Job Board site. But, since January 2010, the number of IT manager Jobs advertised have almost halved, and – today – they account for 32 percent of the available jobs.

    Demand for project managers has also decreased month-on-month, between May to September of this year.

    And in the US:

    ThomasNet’s newest Industry Market Barometer™ (IMB ) shows North America’s industrial/manufacturing sector surging forward, accelerating the momentum of its recovery with the promise of further expansion to come. Several key indicators all demonstrate a sector that’s “caught on fire”—taking into account more company growth, fewer business declines, a resumption of hiring, a winding down of layoffs, and new investments.

    Here is the link for more information:

    http://www.businesswire.com/news/home/20101004006288/en/Survey-Shows-Industrial-Sector-Surging-Noting-Faster

    “Their growth is fueling the expansion of the companies that buy from them—leading to increased innovation, decreased time to market, and additional hiring.”

    New Job Creation; Layoffs Nearly Over

    The growth of industrial companies is leading to the creation of new jobs, with 34 percent of respondents saying they plan to hire again this year. The kinds of jobs companies are adding also indicate more growth ahead. For example, 25 percent of firms with new openings are adding line workers, an indication of increased product demand. Twenty-three percent are adding sales and marketing staff, showing confidence in customer buying power. Nineteen percent are recruiting engineers, supporting stepped up product development.

    While many companies are adding new jobs, the IMB also shows layoffs winding down. Nearly 60 percent of respondents plan to keep headcount level this year, and only eight percent plan to downsize.

  10. Ariella
    October 27, 2010

    While it can be frustrating to have salaries frozen, many in the IT industry have taken huge cuts in salaries, particularly if they lost Wall Street type jobs and had to take whatever they can get.  People who were drawing around 100K plus bonus are now earning in the 60-75K range, and those are the fortunate ones who found employment.

  11. Ariella
    October 27, 2010

    Barbara, I admit that math is not my strongest point, but the numbers don't make sense to me: ” Nearly 60 percent of respondents plan to keep headcount level this year, and only eight percent plan to downsize.”  We have only 8% registered as admitting to plan to downsize.   What about the other 32% who did not respond that they plan to keep headcount level?  It doesn't sound like they said that they were actually planning to increase headcount either.  In any case, I'm not certain that 60% hoping to keep the headcount paints such a rosy picture for those in the industry.  That is a rather small majority that only assures those already working and offers no promise of employment opportunities opening for those who are currently without jobs.

  12. itguyphil
    October 27, 2010

    And the consultants like me are working harder and dealing with clients that draw out proposals as long as possible. It gets down to the wire most of the time in the past two years and sometimes quotes expire. Does anyone know how long it takes for quotes to expire with alot of the large industry vendors?

    I am HOPING for the IT spending to go back to pre-recession levels. I can't wait.

  13. Anna Young
    October 27, 2010

    Ariella, I have a tiny math problem too. I don't see how the positive numbers cited by Barbara jive with the fact companies are keeping cash at the bank rather than spending it on investments. Corporate IT equipment purchases go up when two conditions are met. The first is when a replacement cycle can no longer be pushed out and the second is when companies are heavily hiring, pushing unemployment rates down. New employees typically need new computer workstations, etc. Neither of these two conditions have been met. It will take some time before hiring picks up strongly enough and companies are squeezing as much mileage as they can out of old equipment. If IT equipment purchases picks up next year it won't start until the second quarter. That's the prediction from my corner of the world.

  14. Ariella
    October 27, 2010

    Pocharl, I can certainly sympathize as my husband also works as an IT consultant.  Anna, your prediction that it will take some time for things to really pick up makes sense.  I think that's the best that we can, realistically, hope for.

  15. Barbara Jorgensen
    October 27, 2010

    Thank goodness for sharp-eyed readers that keep  us honest! Math is not my strong suit either, but that's no excuse. The numbers actually add up to more than 100%–34 plus 60 plus 8. Usually that's due to multiple responses, but the more important issue here is job creation. You are correct–60% with no layoffs is hardly cause for celebration.

    It's also true that there will be no long-term sustainable growth if consumers and corporations don't start spending. But for the businesses that supply the components, logistics services and manufacturing, increased IT spending is good news. Somewhere, at some point, inventory–servers, mainframes, PCs, laptops etc.–is going to move. Even if that inventory is currently sitting on shelves, it will have to be replaced. So there will be a pull-through effect that will spur activity through the supply chain and ultimately increase sales. For businesses, that's the bottom line–increased sales. For the industry at large–myself included, that does not guarantee job growth and that remains troubling.

  16. maou_villaflores
    October 31, 2010

    Barbara, I think the IT industry is starting to pick up now. In my company we closed a deal for five projects at the start of the 3Q 2010. The different innovations (android, iphones, touchscreen) will open different opportunities for the IT industry. Plus the competitions among these IT products and services will also help the industry to rebound after the recession.

  17. Barbara Jorgensen
    November 2, 2010

    Thanks, Maou, for the anecdotal information. I've been hearing similar things on earnings conference calls–IT upgrades are in the budget for 2011. I'm also thinking we'll be seeing more investment in security technology? (See Logistics 101: No Excuses…)

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