May 12, 2003

Customer Skepticism Threatens IT Spending

Continuing cynicism about the benefits IT vendors can really deliver has combined with the current geopolitical environment to depress consideration of future IT purchases by US companies, research released today claims.

At the same time, the study by Techtel suggests that the upgrade cycle PC vendors have pinned their hopes on may have already been and gone.

The study shows that overall demand amongst US companies slipped 5% in the first quarter. However, Techtel's demand index showed spending on higher-end items such as servers and storage actually rose 11%. Low-end items, desktop PCs and notebooks, showed a decline of 9%.

However, looking forward, things were bleaker. Techtel's consideration index, which is an early measure of future purchases, slipped in the first quarter, down 8% overall on the fourth quarter. This was true in both the low end, down 8%, and the high end, down 9%.

The research firm said that unless consideration levels increase, purchase growth could stall within a few quarters.

Michael Kelly, CEO of Techtel, said the US economy has been through a perfect storm, politically and economically, with the War in Iraq, the threat of SARs, and lingering economic malaise. Given these factors, he said, demand had held up quite well.

Kelly said that while corporations were still keeping a tight grip on spending, the economy was not the key reason for the lower consideration of IT purchases. Rather, he said, they are simply extremely skeptical of the solutions offered by IT vendors, because of their sins in the past.

These sins were many and varied, he continued. From the failed promises of big ticket technologies, to company sales people selling customers more licenses than they needed. "They re not sure who they can trust," said Kelly.

He described customer relationship management (CRM) as "the poster child for overselling." The upshot now was that customers are unwilling to take a bet on new major projects. "You can t be selling grand schemes. People want to know how it's going to work."

At the same time, said Kelly, low-end discretionary purchases had continued since 2001, even as companies postponed big projects, but this looked to be slowing. This is bad news for PC firms who have been holding out for a much-delayed upgrade cycle of the machines they sold ahead of the year 2000. The fact is, said Kelly, this may have already happened. "The PC ride is over," he said. "It's going to keep growing, but at slower rate."