February 12th, 2008
Amid lackluster IT spending, CIOs say ERP back en vogue
CIOs are expected to increase their technology spending by 2.7 percent in 2008, but the more notable change is the number of executives citing ERP software as their main priority.
That’s the takeaway from a quarterly survey put out by UBS. According to UBS, 69 percent of more than 120 respondents said they expect their IT budgets to rise. That’s down from 74 percent in 2007. More importantly: 60 percent of respondents said that a slowing economy wouldn’t hamper their spending plans. On average, spending for 2008 is expected to rise 2.7 percent, down from the 3 percent growth reported in 2007.
Under the surface there are some interesting crosscurrents. The top three spending priorities for 2008 were enterprise resource planning software (ERP), infrastructure and custom applications. Here’s the breakdown:
That focus on ERP should bode well for SAP and Oracle. Sixty percent of CIOs surveyed were Oracle customers with 30 percent SAP customers. My hunch is that ERP systems have become dated and companies are looking to revamp and perhaps deploy more modern service oriented architectures.
Other takeaways of note:
What would change IT spending plans. UBS said:
Separately, two-thirds of the respondents at this point indicated they currently plan to spend their initial IT budgets over the course of 2008, with 7% indicating the potential to increase spend. The remaining 26% mentioned they could spend less than their initial budgets. We also asked the CIOs what kind of change would make them more optimistic about their spending plans this fiscal year. The majority (at 31%) indicated a rebound in the financial markets. Slightly more than one-fifth of the respondents mentioned that a pullback in energy and commodity prices would change their views. The same number (at 22%) also indicated that they are already optimistic, while 10% stated lower interest rates would provide a more favorable outlook. Only 6% of the respondents stated they don’t foresee macro factors that could improve their IT budgets.
Percentage spend with Microsoft remains solid. Forty one percent of respondents said they plan to increase their spending with Microsoft in 2008, up from 28 percent in the second quarter of 2006. Customers planned to spend on SQL Server, Office and Windows Server.
Here’s a look at Vista deployment plans, which appears to be a 2009 story.
Virtualization spending is fluid. UBS notes:
In 2008, the majority of the CIOs (at 29%) plan to increase spend on virtualization software by 6-14%, which compares to the majority who plan to increase spend on their overall IT budget by 0-5%. Moreover, nearly 60% of the respondents indicated a spending increase of 6-25% on virtualization software over 2007 levels. Using the midpoints of the ranges specified, we estimate the average increase in 2008 to be about 15%. For the virtualization space we believe it is important to note some broader industry trends that might be on the horizon. We held a virtualization panel with industry experts in early February who noted that customers making the transition from early adopters to mainstream users have created an air pocket in virtualization demand. One key reason behind the difficulty in crossing this chasm is that time is needed once initial deployments begin to figure out how virtualization impacts administrative processes, such as patch management. In our view this will be an important situation to monitor.
This air pocket that UBS has noted would explain the weaker than expected growth projections from VMware.
Salesforce.com is the preferred hosted CRM provider with 52 percent of respondents citing the company as its go-to supplier. Siebel/Oracle got 22 percent with SAP getting 14 percent.
Linux deployments may be slowing. UBS says: “Looking out to 2008 our CIO data suggests Windows deployments will grow 7% (vs. 10% in 2007) and Linux deployments will grow 7% (vs 9% in 2007). Given the IDC data showing faster growth for Windows server versus Linux, this metric needs to be monitored.”
Oracle and Microsoft are pulling away on databases. This chart tells the tale:
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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