What's the IT replacement cycle?

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March 18, 2002 (Computerworld) -- A key factor in any IT spending rebound this year will be whether businesses view their current stock of IT equipment as outdated or still see some useful life in it. Here, several economists discuss this point and other elements of IT investment:



George McKittrick, economist

Office of Economic Conditions, U.S. Department of Commerce, Washington

Excerpt from the agency's "Digital Economy 2002" report:

"Many types of IT equipment tend to be replaced every three or four years. ... Economic forecasters expect that this replacement cycle will soon kick in for many companies that will want to maintain their IT capital stock. Some experts believe that businesses are finding that the IT equipment is not becoming obsolete as rapidly as a few years ago and they are stretching out their replacement cycle, say from 3 to 3.5 or 4 years. If, and to the extent that, the replacement cycle has been extended, the rebound in IT investment will be later and flatter."



Ernie Goss, professor of economics

Creighton University, Omaha

http://econews.creighton.edu/buscond/

"Two factors will influence capital spending on technology in the near term:

• Profit outlook, which remains somewhat cloudy and for some industries downright pessimistic. However I expect the profit picture to improve in the second quarter of 2002. This will have a positive impact on technology spending in the second half of 2002.



• The current age and stock of technology used by businesses. [When the Y2k deadline was approaching,] businesses indulged in technology buying. Most businesses discovered post-Y2k that their spending had been excessive. Thus, around the middle to the end of [the second quarter] of 2000, businesses cut back dramatically on their technology buying and have yet to jump back in the buying market. This means that the age and quality of technology currently in use is suspect.

"I thus expect companies to begin buying replacement hardware and software in [the second quarter] of 2002. This buying will be driven by the need for businesses to remain competitive despite a less-than-robust profit outlook.

"One of the primary factors restraining current growth and preventing a recovery has been the lack of business investment, especially on technology. The recovery will not be fully under way until there is a rebound in technology spending. Thus, in this case, technology spending is a leading economic indicator -- not a lagging economic indicator."



Bruce J. Kratofil, president

BJK Research, Lakewood, Ohio

www.bjkresearch.com

"There's still this big overhang in IT from all the spending on computers and related equipment that ended with the dot-com crash. A lot of businesses spent a lot, and they're still digesting that. And that tends to put a damper on any upcoming

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