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Report: IT executives to open wallets wider

Many chief information officers expect to exceed their IT budgets this year, as cost cutting subsides and companies once again shell out for emerging technologies, a new report says.

Many chief information officers expect to exceed their information technology budgets this year, as cost cutting becomes less of a trend, and companies once again look at emerging technologies as tools for future growth, a new report says.

For the survey, published Tuesday, Forrester Research polled chief information officers at 115 North American companies regarding their IT budgeting plans. The researcher found that during the last three months, executives had begun increasing tech investments.

Forrester said 34 percent of the executives interviewed plan to spend more on IT in 2004 than they originally expected, a respectable gain over the 25 percent who said the same during a survey conducted by Forrester in the first quarter. Another 55 percent of the CIOs said they would remain on target with their budgets. Forty-three percent of respondents considered their business climate to be strong or very strong, up from the 33 percent who answered the same for the first-quarter survey.

"The renewed optimism in IT has been creeping up for some time, but during the second quarter, those positive feelings translated into spending," said Nick Wilkoff, an analyst at Cambridge, Mass.-based Forrester who helped author the report. "There are real signs that the purse strings are finally opening."

Although Wilkoff pointed out that IT spending will continue to lag in comparison to the investments of the tech go-go days, he said the report's findings should raise hopes across the industry.

Among the market areas expected to benefit most from the increased spending is the computer hardware segment, which Forrester now believes will grow by 11 percent, compared to 2003. For 2004, the research company is projecting a 9 percent annual jump in sales of operating systems, systems management software and security software. IT outsourcing is also expected to increase by 9 percent, according to Forrester, and communications equipment spending should rise by 11 percent.

"The consolidation has been done within IT, the cost cutting has taken place, and people have reorganized for growth," Wilkoff said. "Companies are under greater control, and you won't see the kind of spending you once saw, but things are looking up."

An almost surefire sign of an improving IT economy can be found in Forrester's belief that emerging technologies are also enjoying new favor with CIOs. Whereas much current spending has been focused on improving existing operations, 66 percent of the executives who were surveyed said they intend to increase the amount of money they spend on new technologies, including research and development.

Popular areas of interest there include open-source software, RFID (radio frequency identification) systems and business process outsourcing. Wilkoff said investment in new tools will grow slowly but surely.

While more than 80 percent of the CIOs interviewed by Forrester came from larger businesses, the researcher said growth in spending at small companies may occur at an even faster rate than among enterprise customers. Earlier this year, Forrester said small and midsize companies would increase spending on IT by 6.6 percent this year. In comparison, large companies, or those with more than 1,000 employees, are expected to grow IT spending by 2.4 percent.