SMB IT spending strongest in three years

IT budgets for small and medium-sized businesses are expected to rise 7% in 2006, up from 4.8% in 2005, and slightly ahead of 2004, according to a new report. Hardware and security are priorities.

Spending on information technology by small and medium-sized businesses (SMB) in the U.S. and Canada is the strongest in three years, according to new data from Forrester Research Inc. The Cambridge, Mass.-based firm found that North American SMBs expect to boost IT budgets by an average 7.2% in 2006, up from 4.8% in 2005 and slightly ahead of the 6.6% growth registered in 2004.

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"Budget optimism is evident across numerous industries, with larger-than-average increases reported by manufacturing (9.5%), finance and insurance (9.2%) and utilities and telecommunications (9.1%)," writes SMB analyst Michael Speyer, lead author of the report.

The exception to the IT bull market is the public sector, which expects budget increases of 2.4% in 2006, down from an average 4.7% increase in 2005.

The findings are based on responses from 780 North American businesses, split almost evenly between companies with six to 99 employees and companies with 100 to 999 employees.

So, how will the money be spent?

Despite bigger budgets, SMB IT shops say that improving efficiency is their top priority in 2006. That said, one initiative that might actually help IT shops spend less -- consolidating infrastructure -- ranked a lowly seventh of eight IT priorities in 2006, the authors note.

Replacing or upgrading existing applications ranked as the second-highest priority, and upgrading security -- which consistently comes out at or near the top -- tied for third place with Internet and e-commerce projects. Indeed, 50% of SMBs plan to increase their spending on security software, suggesting another good year for security vendors; 42% of SMBs plan to increase spending on Web applications.

Hardware spending should also be healthy this year, according to Forrester, given that a larger percentage of SMBs said they plan to increase rather than cut back on hardware purchases. Where the dollars go, however, varies widely with the size of the business. Companies with more than 100 employees are planning to spend more on storage and networking equipment in 2006, while a majority of firms with fewer than 100 employees (59%) plan to buy PCs.

The beneficiaries of the padded spending accounts will be the large vendors, according to the survey responses. On the hardware side, Cisco Systems Inc., Dell Inc., Hewlett-Packard Co. and IBM should dominate the market, with Dell poised for the "most upside potential," Speyer said. Asked which hardware vendors will get more of their money in 2006, 50% of the companies surveyed said Dell, followed by 19% for HP computing, 17% for Cisco, 15% for IBM and 10% for HP networking. IBM, with roots in the large enterprise market, is gaining clout in the midmarket. Nearly one-third of organizations with 500 employees or more said they plan to spend more with IBM in 2006.

Software dollars are spread among many vendors, with Microsoft and Cupertino, Calif.-based Symantec Corp. coming out at the top, the survey showed. Citrix Systems Inc., IBM and Oracle Corp. are most popular with midmarket companies, reflecting a recent push by these vendors to penetrate that segment.

Vendors might want to keep this in mind: Peer pressure rules with SMBs. "When it comes to making final purchasing decisions, IT decision makers (irrespective of title) turn first to their colleagues who work in IT," Speyer writes. Industry trade groups are the next most important influencers, with vendors and resellers coming in third.

Let us know what you think about the story; e-mail: Linda Tucci, Senior News Writer

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