IT Spending Heats Up

Where better to find out what's going on with information technology (IT) spending than from the people who sign the checks?

Forrester Research surveyed 150 chief information officers as part of its just-released second-quarter CIO Confidence Poll. The number who saw the business climate as being weak or somewhat challenging dropped to 27% from 37% in the first quarter. Furthermore, the number of respondents who expected to outspend their budgets this quarter increased to 34% from 25%.

It's an incremental increase, not a sudden change, but it's significant. The improving business climate likely will bring continued increases in sales of software, services, and especially hardware. And Forrester also says it expects outsourcing ("outsourcing" here meaning that CIOs hire other firms to handle IT work for them) to follow closely behind, increasing 9% this year.

According to Forrester, 66% of CIOs also plan to increase spending on the implementation of new technologies and research and development. So it's clear that IT leaders are interested in more than just replacing tired old equipment. They are, in many cases, years behind technologically. The current quarter is the first with an indication from the mouths of the decision makers that they are increasingly confident in investing in new technology and that demand for goods and services will justify that spending.

The implementation of new technology by big corporations is frequently a large but one-time effort. Often it makes more sense for a company to outsource the work. That is especially the case coming out of an economic slump when staffing has been trimmed to the minimum and hiring is rare. It's the same reason that temporary employment firms do well under similar circumstances. Furthermore, the firms looking to upgrade their technology often don't have a large enough pool of resources to tap into and find the specialized expertise to implement a new technology.

The major players that are ready and waiting to take up this outsourcing slack include IBM (NYSE: IBM  ) , Electronic Data Systems (NYSE: EDS  ) , Computer Sciences (NYSE: CSC  ) , Hewlett-Packard (NYSE: HPQ  ) , and Accenture (NYSE: ACN  ) . Of these companies, IBM is the consistent leader, but Computer Sciences put up strong booking numbers last quarter. And it is very possible that Accenture's Homeland Security deal (provided it gets past the House of Representatives' opposition) could be seen as a vote of confidence, serving as positive marketing and swaying CIOs in its favor.

The outsourcing sector of IT has been somewhat overlooked because it hasn't yet put up impressive numbers, while server sales, for example, have increased year-over-year for the past four straight quarters as companies have set about replacing antiquated equipment. That's been the first step toward renewed IT spending by large corporations, but based on executives' recent comments, it won't be the last.

Fool contributor Mark Mahorney doesn't own shares of any companies mentioned.


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