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IDC: CIOs cautiously optimistic about IT spending

With IT spending going up, where will those precious dollars go? Analysts with IDC predict the path of the spending and offer some advice for CIOs: Take advantage of tax incentives while they last.

BOSTON -- International Data Corp. analysts predict that a robust economy and soon-to-expire tax incentives will drive up IT investments over the next year and beyond, despite the fact that CIOs remain cautious about spending.

As spending picks up, enterprises will first invest in upgrading systems that were neglected during the economic downturn. The Framingham Mass.-based IDC believes the focus will then shift to newer technologies.

Analysts Stephen Minton and Kevin White based the forecast on an IDC survey of CIOs and end users conducted at the beginning of the year. They presented the findings at IDC's recent Directions 2004 industry briefing.

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"We're finally seeing a turnaround where companies feel optimistic," said Minton. "Half of companies now predict an increase in their budget in the year ahead."

Still, executives are operating with newfound caution, and spending increases will be modest at first. Minton said CIOs won't be spending money on big ticket items like they did during the late 1990s during the Internet boom and preparation for Y2K.

"Remember that companies are still cautious, still nervous," he added. "We're still coming out of this environment which produced [concepts] like 'IT doesn't matter' and 'good enough computing.'

White reminded the audience that there currently are huge tax incentives available for companies making an investment in technology. Under the Bush administration's Jobs and Growth package of 2003, which expires at the end of this year, large companies can write off half of any investments they make. Small companies can write off 100% of their investments.

"We're advising companies that are on the fence about whether to make an investment… to make it this year and take advantage of those tax provisions," White said.

Minton said that security products will continue to be a top priority for IT spending during the economic recovery.

He said that CRM is consistently cited as something that companies threw too much money into during the late 1990s. But CRM consistently comes up as one of the main reasons to increase IT spending in the months and years ahead.

"What this tells us is that there will be no more big ticket implementations," said Minton, who added that newer CRM systems will operate in more modular environments.

Minton said other things on the top of CIOs' shopping lists were Wireless Local Area Network investments and Web services. "Instant messaging was a little bit lower on the scale because with so many CIOs, instant messaging is still seen as something of a nuisance," Minton said.

Conference attendee Charles A. Coleman, Jr., Ph.D., is the chief operating officer of TheraSim, a vendor of medical simulation software in Research Triangle Park, N.C., and a former director of IT at Red Hat.

Coleman said that CRM definitely will be a major area of IT spending as the economy recovers because businesses today understand that it's important to measure the effectiveness of product launches, campaigns and so forth. "I see market metrics playing a much bigger role," he said.

Coleman agreed that despite the good economic news, many businesses are still cautious about the investments they make. Spending will be done in a much different context than it was at the end of the last decade.

"I want to know that we can follow a dollar and see what the metric is on the risk and reward," Coleman said. "It's going to be a much more conservative approach."

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