IT spending slowdown hits Europe

Merrill Lynch’s TechStrat Survey of 50 US and 15 European chief information officers has shown that about one third of US and European companies have frozen their budgets. The Europeans are no longer more optimistic, according to Merrill Lynch.

Cutback targets varied, but most executives pointed towards staffing, new projects and hardware upgrades. The report said essentially that all discretionary outlays are under review and that even important projects are being rolled out more slowly.

About one third of respondents, weighted towards Europe, said they are temporarily freezing outlays, and that the cutbacks would last for about six months.

Merrill Lynch global strategist Steven Milunovich said the good news is that the economy, not previous overspending, is the main cause of the slowdown. This argues for a quicker recovery or at least a recovery in sync with the economy.

Milunovich explained that when the economy improves, technology spending should come back quickly. But he warned that ‘if it is over-capacity, tech spending may not come back quickly’.

Ecommerce remains important, and having an adequate staff is imperative, but adding to staffing levels right now is not a priority. Many companies are trimming second-tier players, the report found, and consultants are getting cut first as CIO’s flex their muscles.

According to the report, CIOs continue to embrace internet technologies and are almost half way to ‘webifying’ their companies. Even with the dotcom threat faded, CIOs said that they don’t want their traditional competitors to beat them to the punch.

Milunovich said not to expect ‘catch-up’ spending in the final months of the year when there is traditionally a surge in IT spending. This year’s growth looks flat to slightly up after last year’s 12 per cent increase, but he said that CIOs expect long-term IT spending growth to be a healthy 10%.


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