Survey Finds IT Demand Is Rebounding

Unexpectedly high business demand for PCs helps lead IT back to pre-Sept. 11 levels.
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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 bycompanies 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, whichcover such items as printers and PCs. The survey found when separated out, enterprise IT purchases didn't quite reach the pre-Sept. 11 second-quarterlevels.

Techtel surveyed only larger companies or institutions including

Ford

(F) - Get Report

,

AT&T

(T) - Get Report

,

Charles Schwab

(SCH)

, 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, hasinteresting implications for

Compaq's

(CPQ)

merger with

Hewlett-Packard

(HWP)

, which some have feared would be dragged down by a slowdown in PCsales. "It raises the possibility of the PC section now acting like abuoy," Kelly said. "I didn't expect it."

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

Merrill Agrees

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

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

Both Techtel and Merrill Lynch suggested some bad news about

BEASystems

(BEA)

. Techtel's survey found purchases from BEA systems in the fourthquarter were down from the second and third quarters. Kelly predicts aslowdown in future application server sales at BEA Systems stemming fromlow brand awareness, a rise in negative opinion and competition from

IBM

(IBM) - Get Report

and

Oracle

(ORCL) - Get Report

. 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 betterexecution and delivering more complex solutions.

Among the other strong companies in Techtel's survey:

EMC

(EMC)

and

Brocade Communications Systems

(BRCD)

. "When the industry does come back, theyshould be able to outperform," Kelly said.

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

Other companies that Techtel pointed to for a rebound include

Siebel

(SEBL)

andOracle, which suffered weakness in their core CRM and database businessesin 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 CRMsoftware maker.

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