Survey Finds IT Demand Is Rebounding

In a hopeful indicator of continuing recovery, demand in the information technology sector has finally returned to pre-Sept. 11 levels and is now slowly climbing higher, according to a widely used survey of 1,600 companies released Thursday.

The survey by Emeryville, Calif.-based Techtel, which has been conducting quarterly IT studies since 1984, measures both IT purchases by companies as well their consideration of future purchases.

"Our data indicates that, as a whole, the IT market is stable and should continue to improve, barring another major shock to the system," said Michael Kelly, chairman of Techtel, referring to the Sept. 11 terrorist attacks.

But don't get too excited yet. The study breaks down purchases into two categories -- large IT purchases and general business purchases, which cover such items as printers and PCs. The survey found when separated out, enterprise IT purchases didn't quite reach the pre-Sept. 11 second-quarter levels.

Techtel surveyed only larger companies or institutions including Ford (F Quote), AT&T(T Quote), Charles Schwab (SCH Quote), the U.S. Department of Agriculture and the Bureau of Labor Statistics. According to Kelly, clients include Morgan Stanley, Merrill Lynch and Fidelity Investments.

Kelly said that indicates the recovery is likely to take its time. "It's just going to be a nice slow ride coming back," he said.

General business purchases, meanwhile, showed surprising strength, surpassing second-quarter levels. That finding, Kelly suggested, has interesting implications for Compaq's (CPQ Quote) merger with Hewlett-Packard, which some have feared would be dragged down by a slowdown in PC sales. "It raises the possibility of the PC section now acting like a buoy," Kelly said. "I didn't expect it."

Kelly dug further and found that Compaq also proved to lead in the low-end server market.

Merrill Agrees

Those findings jibe with a report on fourth-quarter spending released last month by Merrill Lynch. It found that both Compaq and H-P received high ratings when IT execs were asked to estimate the likelihood they'd spend money with the storage vendors in 2002.

Merrill Lynch First Vice President Steven Milunovich, the report's author, noted that H-P has rejuvenated its enterprise line. Uncertain of why Compaq scored so high, he speculated it was because of PC upgrades.

Both Techtel and Merrill Lynch suggested some bad news about BEA Systems. Techtel's survey found purchases from BEA systems in the fourth quarter were down from the second and third quarters. Kelly predicts a slowdown in future application server sales at BEA Systems stemming from low brand awareness, a rise in negative opinion and competition from IBM and Oracle. The company is scheduled to report fourth-quarter results Feb. 21.

Merrill Lynch also found BEA was low on CIO vendor lists.

Techtel and Merrill Lynch agreed on one strong company: IBM. Big Blue stacks up strong against BEA Systems, Kelly said. Milunovich credited IBM, which suffered in past surveys, with better execution and delivering more complex solutions.

Among the other strong companies in Techtel's survey: EMC (EMC Quote) and Brocade Communications Systems. "When the industry does come back, they should be able to outperform," Kelly said.

But those findings conflicted with Merrill Lynch's report, which found EMC and Brocade scored low among CIOs. Yet, at the same time, those same CIOs ranked storage spending high on their list of priorities. Even that conflict led a flummoxed Milunovich to ask, "If storage spending is rising, who else are CIOs going to buy from?"

Other companies that Techtel pointed to for a rebound include Siebel (SEBL Quote) and Oracle, which suffered weakness in their core CRM and database businesses in the past two quarters. "Both of them are on the mend," said Kelly.

But Merrill Lynch found Siebel scored at the very bottom of CIOs' vendor lists and suggested a lack of new application spending hurt the CRM software maker.