IBD: It Took Five Years, But Tech Spending Returning To 2000 Levels

["Bonnie Granat" <bgranat -at- granatedit -dot- com>]

http://www.investors.com/editorial/tech.asp?v=7/30 It Took Five Years, But
Tech Spending Returning To 2000 Levels BY BRIAN DEAGON INVESTOR'S BUSINESS
DAILY Business spending on technology for the rest of this year will likely
continue the pace of the first half.  That means final figures will hit the
$1 trillion mark for only the second time, joining the peak bubble year of
2000.

But reaching $1 trillion won't cause analysts to pop the champagne.  It
simply means spending on information technology is back to where things left
off five years ago.  Growth is pegged at about 5%-7%, and will likely stay
at the level for some time, analysts say.  That's tame compared with the
double-digit growth of the 1990s, but still solid.

"It's enough to support a large stable of tech companies, though it will
also force more consolidation," said Stephen Minton, an analyst at
International Data Corp.  "The industry is more mature.  Certain sectors
have reached levels of saturation."

IDC says global tech spending will top $1 trillion, up 6% from 2004, and
slightly surpass 2000.  It sees the U.S.  portion at $417 billion.

Unexpected changes in the economy, a dollar crisis or rising energy and
interest rates could slow growth.  Still, a report to be released Monday
suggests optimism.

The monthly CIO Magazine Tech Poll says chief information officers expect
tech budgets will grow 10% over the next 12 months.  That's the highest
growth since April 2001, and up from 6% the prior month.

"After more than five years of fizzling, tech may be about to take off,"
said Ed Yardeni, chief investment strategist at Oak Associates.

Technology investment is a leading indicator of U.S.  economic strength.
Technology is credited for big leaps in worker productivity over the past
decade, fueling economic growth while keeping inflation at bay.  Spending on
tech accounts for about 43% of total U.S.  capital spending by businesses,
says research firm Precursor.  That's up from 32% in 1990.

Tech growth was restrained the past few years, says Precursor, because the
largest U.S.  businesses weren't spending.

"Large enterprise spending, which has been missing in action in the last
three years, is finally growing about 10%," said Bill Whyman, a Precursor
analyst.  Whyman says economic growth is "good enough" to support business
confidence to invest.

The U.S.  economy grew at a solid 3.4% rate in the second quarter, the
Commerce Department reported Friday.  It's the ninth straight quarter that
gross domestic product rose faster than 3%, but growth slowed from 3.8% in
the first quarter.

Precursor says companies will want to increase their tech spending to
increase productivity and profits.

While the '90s had the Internet, businesses have treaded slowly the past few
years because of a lack of any compelling new technology trend.  When
companies can verify a good return on investment, they open their wallets.

"Compelling business cases are getting funded," said Dan Nolan, senior vice
president of professional solutions at Forsythe Technology.

The four hot areas, says Nolan, are information security, storage, Internet
communications and blade servers.  Rather than deploying radical new
technology, businesses are taking what they already have and making it
better and more secure.

This is good news for storage firms such as EMC, security firms such as
Symantec and blade server makers such as Dell.  Internet communications
covers a wide range of technologies, including Web-based software and
wireless communications.

Altogether, these technologies are part of a subtle but significant shift
toward new methods of computing - called utility, grid or on-demand
computing - that let firms spend as they grow.  It also explains the more
gradual growth in tech spending vs.  times past.

"It's a huge cultural shift for markets to absorb and a shift on how
networks operate," said Nolan.

Bonnie Granat | http://www.GranatEdit.com 
bgranat -at- granatedit -dot- com 
Cambridge, Massachusetts, US 



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