Study: War could crimp IT spending

The war in Iraq is giving chief information officers pause about IT spending, according to a survey by investment bank Merrill Lynch.

Although less than one-fifth of the surveyed American and European CIOs said they would slow technology spending with the start of the U.S.-led war against Iraq, fewer still said they would increase spending even if the war were to end quickly, according to the recent survey.

Seventeen percent of the CIOs said that the war's start would put a drag on their spending. A quick end to the conflict, meanwhile, would not provide much incentive to tech buyers--90 percent of those surveyed said that such a turn of events would not cause them to increase their IT spending.

The survey of 100 CIOs--75 in the United States and 25 in Europe--suggests that the roadblocks to tech spending are "structural problems in the economy and technology" rather than the instability caused by war.

Others have come to the same conclusion. Goldman Sachs, for one, sees only a smidgen of growth in the tech sector for the coming year, calling attention to "the persistently weak fundamental environment," whose challenges won't be conquered by a smoothing over of geopolitical tensions.

An increasing number of technology companies have blamed the rising tensions in the Middle East over the past few months for their declining revenue, saying that their customers had curtailed IT spending because of uncertainty arising from the possibility of war. Early this month, for example, Oracle said its revenue came in at the low end of the company's guidance because of rising oil prices and anxiety over the possible war.

"Companies such as EMC and Sun that have less recurring revenue are at most risk," said the Merrill Lynch survey, conducted by analyst Steven Milunovich.

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The survey concludes that even a 20 percent slowdown in tech spending could cause technology companies to miss their revenue targets for the quarter.

Merrill Lynch's "TechStrat" survey also covered other topics, including utility computing, an emerging technology practice intended to better coordinate hardware resources and in some cases treat computing as if it were a service like electricity or water. Asked what year they expected utility computing to become a reality, the CIOs on average said 2006. IBM was viewed as the most capable supplier of utility computing, followed by Sun Microsystems and Hewlett-Packard.

The CIOs surveyed by Milunovich said they were increasing the variable portion of their IT costs but were not yet sold on the idea of utility computing--the "pay as you go" model for computing power. Fixed costs are those associated with facilities, depreciation and salaries, while variable costs are those connected to outsourcing and contract workers.