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Survey Shows Measured Rise in IT Optimism

Techtel reports that more than 27% of companies expect spending to increase over six months.

In another signal that the tech recovery may have legs, a survey of more than 800 small, medium and large businesses shows that more than one company in four expects IT spending to increase in the next six months, a marked change from sentiment at the beginning of the year.

Six months ago, just 20% of the companies queried in a quarterly survey by market research firm Techtel expected spending to grow in the future, compared to 23% three months ago. The latest survey, conducted in early October, shows that 27.6% of the companies expect to spend more, 21.1% expect to spend less, and the remainder say spending will be flat.

"This is a more sustainable improvement in tech demand than anything we have for a year and a half," said Michael Kelly, CEO of the Emeryville, Calif., firm.

Leading the spending recovery so far are health, financial and business services, in which Techtel's survey showed that about 17% more companies expected spending to rise than expected it to fall, compared with 11.3% six months ago.

The manufacturing sector still lags but is showing improvement, Techtel found. Six months ago, 14.6% more companies expected spending to fall than to rise. Negative sentiment continued to predominate in the latest survey, but it had dropped to a net of just 4%.

Techtel's survey is somewhat more optimistic than a smaller one conducted recently by Merrill Lynch. In that survey of 75 U.S. and 25 European chief information officers, just 20% said they expected to spend more in the fourth quarter of the year (a shorter time frame than the Techtel survey).

Commenting on the 61% of IT execs who said they had underspent their budget so far this year, Merrill Lynch strategist Steven Milunovich, said, "Unfortunately, that underspending does not appear to be setting us up for a particularly strong fourth quarter, although a few will play catch-up."

Both surveys looked at

Sun Microsystems

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and found both good news and bad news for the troubled company.

According to Merrill Lynch, 77% of those surveyed said Sun was losing its share of their spending, while only 11% said it was gaining. "Sun needs the 44% of CIOs that aren't Sun customers to come into the tent -- and more current customers," Milunovich said.

Sun hopes that its new,

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low-cost software strategy will help offset declining hardware sales, but Milunovich added that "interest in the new software offerings appears tepid."

While agreeing that Sun's offerings appear "irrelevant" to many customers, Kelly said his survey shows that Sun remains a trusted, respected vendor. "Given a new relevant set of products and services, it could recover quickly. This is not a weak brand," he said.

But

Microsoft

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and

Oracle

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are dropping in esteem. "Their brand images are in free fall, and no one seems to know why, or even care," he said.

Techtel's survey did not explore the reasons for the negatives, but Kelly believes it come be summed up in one word: "arrogance."

Although PC sales were

surprisingly strong in the third quarter, Kelly said demand for desktops and notebooks may slow as spending switches to higher-cost, higher-risk applications and their supporting hardware and service offerings.

On the rise, he said, is demand for midrange servers, storage area network, or SAN, switches, financial applications, system integration in large companies, application servers, WiFi (wireless networking) equipment and customer relationship management software.