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CIOs Will Open Their Purses in 2002
IT spending will rise, but don't expect the floodgates to open.
Posted Dec 4, 2001
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New York--There was a breeze of optimism blowing through the Morgan stanley CIO Outlook 2002 Conference with many CIOs expecting an economic rebound between the second and third quarters of next year.

After a year of depleted earnings, missed revenue targets, and layoffs, all of which caused Fortune 1000 companies to dramatically scale back their IT spending, some top CIOs are preparing to loosen the purse strings after the first quarter of 2002.

In fact, according to Morgan stanley's monthly CIO survey, global IT budgets are estimated to rise at least 2 percent in 2002, said Ryan Rathman, who covers some enterprise software companies for Morgan stanley. This rise is more in-line with historic levels such as the 3 percent growth in IT budgets in 1999 before the dramatic 12 percent increase in 2000 during the Internet craze, he said.

Also, the top five areas global companies plan on investing in 2002 include e-commerce initiatives, security software, application integration, storage hardware, and ERP software, according to the monthly survey. E-commerce was the overall leading category with 37 percent of respondents claiming it is an IT spending priority next year.

While global Fortune 1000 companies are opening their IT budgets, Morgan stanley's IT spending budget will be flat with spending falling between $2.5 and $2.6 billion in 2002, just about the same spent last year, said Guy Chiarello, managing director and CTO for Morgan stanley during a presentation at the conference.

He said the company will continue to spend on security and enterprise software, and it also will be more assertive with its CRM initiatives, looking to consulting organizations to bring in strategies that will help the company reinvent business processes.

In areas of opportunities to outsource functions, Chiarello said Morgan stanley intends to increase the overall percentage of infrastructure that is under managed services. Currently, 14 percent of the company's infrastructure is under managed services by IBM Global Services. "We are looking at managed services from front to back," Chiarello said.

On the Down Side

In other areas, Morgan stanley expects its 2002 spending on storage to decline by 40 percent in comparison to 2001, and investments in network equipment for data and voice is expected drop by 15 percent this year from the $300 to $400 million that was spent last year.

The decline in spending was not triggered because the company was cutting back on the use of its network infrastructure, but more so because it made aggressive investments over the past few years. However, Chiarello cautioned that to hold back on IT spending in order to cut costs would be a fatal mistake for many CIOs.

"In 2003, more CIOs will be fired. Cutting costs by deferring IT spending is the worst evil. If CIOs continue into 2002 deferring spending to bring in costs, we are going to see more of them get the ax," he said. Chiarello said that by deferring IT spending, companies would put themselves behind in a competitive market.

On other issues, Chiarello had bad news for Sun Microsystems Inc., as the company plans to move away from its Solaris computing architecture to one that is focused on Intel solutions as it begins a Windows 2000 deployment. In addition, he said that he is not overly concerned with the pricing for servers because, just like PCs, they have a tendency to become commodity items.

Chiarello said that the overall idea at Morgan stanley is to gradually transform the company's computing architecture into that of a total utility computing model so that information can sit in regional data centers and be accessed from any location.

www.morganstanley.com

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