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Chief information officers in the US remain positive about the current health of their various industries with 70 per cent reporting strong or very strong business conditions, while 77 per cent have increased their information technology spending over 2004. Despite these positive views about the present, doubt about the future is beginning to show, however, as the second quarter brought a drop in future business sentiments to their lowest level since Forrester began tracking CIO confidence data in the first quarter of 2004, and a more bearish IT spending outlook for next year.

Still, CIOs are sharply divided in their outlook, with small and medium-size businesses (SMBs) the most concerned. In May 2005, Forrester surveyed 140 CIOs at North American companies as part of our ongoing quarterly review of CIO confidence in the health of their industries, businesses, and IT budgets.

Sixty three per cent of the respondents come from enterprises with at least 1,000 employees, the rest come from SMBs. The sample represents a close approximation of the distribution of IT spending across company size, in which SMBs are close to matching total enterprise IT spend. CIOs remain positive about the present, most likely buoyed by generally positive overall economic conditions.

Gross domestic product for the US remains strong, with an upwardly revised 3.5 per cent annual growth rate over the first quarter of 2005, and consumer spending remains healthy as well. CIOs are seeing these results in their companies, where increased business and hiring are leading to a more positive climate. In addition, results from Forrester’s Business Technographics surveys indicate that IT budgets are higher in 2005 — on average, 3.7 per cent increases for enterprises and 4.8 per cent for SMBs — a key reason for the current CIO enthusiasm.

Overwhelmingly, CIOs reported increased spending over this past year, with 77 per cent reporting at least some increase. Thirty six per cent reported a greater than 5 per cent increase, while only 9 per cent reported spending decreases. . But while current sentiments remain positive, doubt about future business conditions is beginning to show. Higher oil and gas prices, a still-weakening dollar, a rising trade deficit, and general unease on Wall Street are fostering a negative outlook from the average CIO.

More alarming than the outlook itself is its impact. With uncertainty about the future prevailing, IT spending expectations for 2006 are in retreat, with many CIOs simply trying to hold IT spending levels steady. While the average outlook for business conditions and future IT spending is becoming cautious, that average hides a split between more optimistic and more pessimistic CIOs. Expectations for the future business climate worsen. Sentiments about the future business climate took a sharp and sudden downturn this quarter, dropping more than 10 points.

Rising concerns about the future business climate are finding their way into sentiments on future IT spending as well. While 77 per cent of CIOs reported increased spending in 2005 over last year, only 65 per cent are expecting to increase IT spending next year. Caution has not yet resulted in spending cuts though, as only 6 per cent anticipate spending less in 2006 than they do now. IT spending over the balance of 2005 will stay on target, with 74 per cent of CIOs expecting to spend at budget and 14 per cent expecting to overspend the budget. Only 10 per cent expect to underspend their budget.

Forrester Research (www.forrester.com)

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