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Technology - E-chip freeze on IT investment.

The decline in IT spending has crossed the Atlantic

The slowdown in IT spending has spread from the US to Europe. A recent survey of blue chip companies revealed 40% of European companies reducing spending, with half of the US companies doing likewise.

The survey of 50 US and 15 European chief information officers, has found one-third of US and European companies have frozen their budgets, according to Merrill Lynch’s TechStrat report.

Cutback targets varied, but most executives pointed towards staffing, new projects and hardware upgrades.

About one-third of respondents, weighted towards Europe, said they are temporarily freezing outlays 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’.

E-commerce 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 and consultants are getting cut first as CIO’s flex their muscles.

According to the report, CIOs continue to embrace internet technologies. Even with the dotcom threat faded, CIOs said that they don’t want competitors to beat them to the punch.

Milunovich said he did not expect the traditional surge in IT investment in the final months of the year.

This year’s growth looks flat to slightly up after last year’s 12% increase, but he said that CIOs expect long-term IT spending growth to be 10%.

The slowdown could hit IT firms hard. Marconi is expected to confirm job cutbacks this week. Other giants, such as Cisco, are also culling staff.

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