Study: War could crimp IT spending

[InfoSec News <isn () c4i org>]

http://news.com.com/1200-1014-994033.html

By Sandeep Junnarkar and Ed Frauenheim 
Staff Writer, CNET News.com
March 25, 2003

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.

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.



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