Surveys by two investment houses point to a substantial uptick in technology spending in 2005, a welcome break from the run of bad news affecting tech stocks so far this year. Citing a study by trade publication CRN, Merrill Lynch analyst Steve Milunovich said 69% of large firms surveyed expected to increase their technology budgets over the next 12 months, an increase of 16 percentage points over a September survey. And only 11% of the firms surveyed said they expect to cut spending. Networking hardware and software spending expectations reached multiyear highs, breaking out of the relatively low range of expectations seen over the past two years, but the survey also found spending in other technology markets and categories will likely be up across the board, Milunovich said. Small businesses are not queried by the publication, but a survey of resellers that service the market found sales expectations are at their highest level in several months. Companies with more than 1,000 employees said they anticipate significant spending increases in the first half of the year. Looking at the number in more detail, Merrill said that 28.4% of companies with 1,000 to 4,999 employees will boost IT spending, as will 24.3% of companies with more than 5,000 employees. Separately, a survey by Piper Jaffray found that plans for IT spending are at their highest levels in eight quarters. And it, too, found a very low percentage of companies expecting to cut IT spending in the next six months -- just 12%. Service-related companies showed the largest increase in the survey -- at 35.8%. "This is a positive, particularly for the software industry as the services industry accounts for a large percentage of software vendors' revenues," said Piper Jaffray analyst Tad Piper. He noted that Oracle ( ORCL), SAP ( SAP), Hyperion Solutions ( HYSL), Cognos ( COGN), Siebel Systems ( SEBL) and Business Objects ( BOBJ) average about 30% of revenue from service industries.
Piper added that because the survey showed that senior executives are very positive about spending, he has additional confidence that the expectations will actually be fulfilled. Surveys of lower-ranking employees can be misleading since their wishes may be vetoed further up the chain of command. Both surveys are a switch from a much-less-positive IT spending poll published last fall by Goldman Sachs. "2005 forecasts are below this year's spending projections, pointing to low single-digit growth all over again," wrote Goldman analyst Laura Conigliaro.