First business day of 2010 ends well for IT

But there are many reasons for caution ahead

Worldwide semiconductor revenue reached $22.6 billion in November, an 8.5% increase from a year ago and a 3.7% gain from a month earlier, reported the Semiconductor Industry Association. That news helped rally tech stocks today, which finished the day with across-the-board gains.

Special report: Looking back at 2009, ahead to 2010
Special report: Looking back at 2009, ahead to 2010

However, Frank Scavo, president of market research firm Computer Economics, recently completed his forecast for the many remaining business days of 2010, and it includes a generous dose of caution.

In a survey of 139 IT executives at North American companies, Scavo came up with some pointed findings. IT spending will be better in 2010 compared with last year, but it isn't going to be very deep.

In the last three months of 2009, 29% of the IT managers surveyed cut their budgets, but only 16% plan to make budget cuts in 2010.

Also, while 52% of those surveyed expect to increase IT spending next year, their budgets will only increase by about 2%, which is less than the rebound from the previous downturn.

"The bottom line is that IT executives are feeling that the worse is behind us and they are looking forward to a period of stability," said Scavo. But he said the slight increases planned for 2010 "does not fully restore budgets to where they were in 2007 and 2008."

Scavo said he believes that IT managers will hold back on spending in the first part of the year to ensure they have the room to cut spending if the economy slows.

"There is still a lot caution that the recovery may be shallow and there may be a risk of a double dip recession," Scavo said.

The demand for chips, as indicated in the SIA report, is coming from many places, especially PC buying. Corporate buyers "are seeing an almost unavoidable need" for hardware spending on things like storage, he said.

Dean McCarron, an analyst at Mercury Research, said chips sales were helped by the PC market, which is showing signs of being recession-proof from consumers. Demand overseas, particularly in China, is also helping.

But McCarron said that the x86 server sales remain anemic and historically the first quarter is weak period for new business purchases.

This year may also bring a new rounds of IT layoffs, according to a study released today by IT consulting firm Janco Associates. The firm gathered data from nearly 900 firms, of $100 million revenue or more, for its 2010 IT Salary Survey.

Janco CEO Victor Janulaitis said a lot of the staff reductions last year were due to elimination of IT contractors, and not refilling positions. But to meet budget numbers in 2010, IT managers "will have to start cutting staff."

"CIOs are still looking at 2010 as being a rather flat year, if not bleak," Janulaitis said.

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