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Survey: IT spending to slow

A survey of 75 Fortune 500 CIOs predicts that corporate IT spending in 1999 is expected to slow, due to increased funding needed to tame the Y2K bug and other issues.

A recent survey of 75 Fortune 500 CIOs predicts that corporate information technology spending in 1999 is expected to slow, due to increased funding needed to tame the Year 2000 bug and other issues.

The Morgan Stanley Dean Witter survey uncovers a number of trends that indicate slow, but steady, growth in corporate IT spending despite earlier conclusions by some that such spending would be flat in coming years.

The survey found that three-quarters, or 75 percent, of those queried said they have not modified their budgets due to economic conditions or market turmoil.

The results indicate that on the whole, growth in corporate information technology spending in 1999 will slow to between 4 and 6 percent of total revenues, compared with growth of 7 to 9 percent in previous years.

In addition, the survey findings also found that IT executives are attempting to rein in Year 2000 budget spending, with two-thirds--66 percent--of respondents stating that Y2K issues accounted for less than 10 percent of their 1999 IT budgets.

The Year 2000 problem, or the millennium bug, boils down to this: Many computer systems use software which tracks dates with only the last two numbers of the year, such as 97, instead of 1997. When 00 comes up for the year 2000, many computers will view it as 1900 instead, leading to potential failures.

Just about one in eight respondents--13 percent--said that Y2K expenditures would account for more than one-third of their budgets in 1999, down from 1998.

Charles Phillips, managing director and enterprise software analyst at Morgan Stanley Dean Witter, noted that the IT spending survey "illuminated" some nonconsensus findings that will impact technology stock performance in the coming year. "For example, contrary to reports that estimated corporate IT spending would be flat or negative in 1999, our survey indicates there will be moderate growth, although less than last year," he said in a statement.

Despite a more modest environment for IT spending in the coming year, Dean Witter found that three out of four technology buyers--77 percent--expected their budgets to grow at the same rate or faster in 1999.

"While many investors have worried that technology buyers would spend most of their budgets in the first half of 1999, our survey suggests that only one-third believe their budgets will be front-end loaded, which is significant but less than the market feared," George Kelly, managing director and data networking analyst at Morgan Stanley, said in a statement.

In all, one third--31 percent--of those surveyed stated that they had deferred new projects because of Y2K issues, which suggests there may be a rebound in new applications development in late 1999 or 2000. Indeed, 57 percent of respondents said they had a post-Y2K project backlog to address. Additionally, Y2K considerations have spurred three-quarters--74 percent--of senior IT executives to increase spending for off-the-shelf applications.

Morgan Stanley's report also uncovered a number of purchasing trends in specific technology sectors. For instance, respondents stated that IBM, Compaq, and Hewlett-Packard would receive the largest share of all hardware expenditures in 1999.

Microsoft, IBM, and Oracle, in that order, topped the list of projected spending for software vendors. Morgan Stanley Dean Witter found that the top areas for new IT projects next year will be related to Web site development and Internet-based applications.

In networking, the survey points out that Cisco should maintain a healthy share of corporate spending dollars, with Bay Networks and IBM rounding out the top three vendors in the sector.