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Study: Rosy outlook for IT consulting

Nearly half of the CIOs that took part in a recent survey expect to increase spending on consulting and systems integration this year, up from 36 percent that spent more in 2003.

Things are looking up for companies that provide information technology consulting, according to research released Wednesday by investment firm Credit Suisse First Boston.

A recent C.S. First Boston survey of 100 chief information officers found that 46 percent of respondents expect to increase spending in the areas of consulting and systems integration this year. That compares with 36 percent that increased spending in 2003, according to the report.

"Overall, we believe the results of our survey provide a more optimistic outlook for the consulting sector, as spending appears poised for some improvement and billing rates may finally be stabilizing," C.S. First Boston analyst Dris Upitis wrote in a note.

C.S. First Boston's survey involves CIOs at Fortune 1,000 firms "across a wide spectrum of industries."

The survey comes in the wake of other reports that have forecast improved IT spending. In February, research firm Gartner predicted that the number of businesses starting new outsourcing deals will grow by 30 percent this year. Outsourcing refers to the farming-out of work such as information technology tasks or business functions like customer service.

Companies that provide IT services such as consulting or outsourcing include IBM, Electronic Data Systems and Accenture.

C.S. First Boston found that CIOs have grown more ambitious in their IT consulting and systems integration plans since the fall. In an October survey by the investment firm, just 38 percent of respondents expected increased spending in 2004. In that earlier survey, 23 percent expected spending to be "down significantly" in 2004 compared with just 10 percent in the latest survey.

Nearly half of respondents expect billing rates to be flat in 2004, and 26 percent expect bill rates to be up at least somewhat this year, according to the study.

C.S. First Boston said the factor listed as most important when selecting a consulting or systems integration provider was specific product area expertise, cited by 72 percent of respondents. "This would suggest that higher-end providers could enjoy better pricing as demand returns," Upitis said.

The survey also indicated that companies need to expect significant savings before deciding to use offshore service providers, a controversial trend that has grabbed the attention of politicians. Just over three-quarters of survey respondents would require cost savings of more than 30 percent before considering moving work offshore, C.S. First Boston said.