Uncertainty Shadows IT Spending

Amidst lingering concern about the overall state of the U.S. economy, CIOs are predicting a slowdown in IT spending in 2007, according to a new survey from analyst firm Merrill Lynch.

The survey of 75 U.S. and 25 European CIOs reveals that users expect 5.2 percent spending growth in 2006 and 4.8 percent in 2007. American execs predict only 4.4 percent spending growth over the coming 12 months, compared to their more bullish international counterparts who expect 6.1 percent growth.

Users and analysts identified uncertainty in the U.S. economic climate as a key factor in the spending slowdown. "The end of 2005 was slow, then it picked up in the spring, but now it has slowed down again," explains Dan Tanner, a member of the Storage Networking User Group of New England (SNUGNE) and founder of consulting firm ProgresSmart.

Tanner feels that a number of factors are contributing to the atmosphere of uncertainty. These include oil prices, the war in Iraq, low consumer confidence, and the lack of a clear front-runner likely to win either the Democratic or Republican party presidential nominations. "When the financial markets and big companies are paralyzed by uncertainty you get a spending slowdown," he explains.

Even John Thompson, CEO of Symantec, admitted that users are worried during the firm's analyst day this week. (See Symantec Sets Out Roadmap.) "There are macro-economic issues that many of these large companies are concerned about," he said, in response to a question from an analyst. But, the exec added, "The IT environment in 2006 compared to 2005 is quite stable."Analyst firm IDC warned yesterday of storm clouds gathering over the U.S. economy. "Late in May stock markets seemed to plummet on a single announcement of downturn in U.S. consumer confidence," wrote John Gantz, IDC's chief research officer, in a note. "The question is, how fragile is the current booming U.S. economy?"

But it isnt all doom and gloom. Merrill Lynch, for its part, predicts a technology spending growth between 7 and 8 percent in 2006 driven largely by demand from the SMB market, which is increasingly being targeted by storage vendors. (See SMBs Balk at Backup, Exabyte Aims Low With LTO, and Vendors Set Sights on SMB Windfall.)

The survey also reveals that spending on storage, VOIP, and security products is growing at a healthy rate. This year alone CIOs expect their network-attached storage expenditures to increase by 6.3 percent, compared to just 1.4 percent for direct attached storage.

IDC, in another report released today, filled in some details on the storage sector's growth. Revenues from external disk storage systems in the first quarter of 2006 grew 10.3 percent from one year ago to $4.2 billion, according to the analyst firm. The total market for disk storage systems grew to $5.8 billion over the same period, up 6.7 percent, it said. (See External Storage Hits $4.2B.)

Clearly, with the Merrill Lynch study reporting that security spending will rise 4.8 percent between 2005 and 2006 CIOs are rushing to lock down their networks. Spending on VOIP technologies will also grow 4.6 percent over the same period.Other areas were not as buoyant. Spending on mainframes, despite a slew of product launches from the likes of IBM and CA, is expected to drop 1.5 percent between 2005 and 2006. Desktop PC sending is expected to grow just 0.1 percent. (See IBM Unveils Software, Mainframe Mid-Life Crisis, and CA Makes Mainframe Security Play.)

Merrill's study reveals that Sun Microsystems, which announced massive job cuts this week, still has plenty of work to do. Only one percent of CIOs, according to the financial analyst, have decided to adopt Sun's new T1 Niagara servers, which were highlighted as a key weapon in the vendor's arsenal by Sun CEO Jonathan Schwartz this week. (See Schwartz Shakes Up Sun.)

Some 8 percent of CIOs said that they are evaluating the product, although they are currently undecided. According to Merrill Lynch, the fact that Niagara relies on the new Solaris 10 operating system may be one of the major factors slowing adoption of the new server platform. (See Sneak Preview: Sun’s SunFire T2000.)

— James Rogers, Senior Editor, Byte and Switch

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