CIOs in Europe and the US Project Healthy IT Budget Increases for 2014

The forecast for this year follows a strong 2013 in which external IT spending grew at the highest rate since 2008

CIOs at midmarket and large companies in Europe and the U.S. will spend 4.5 percent more on IT products and services this year than in 2013 as they focus their budget priorities on cloud computing, ERP and analytics software.

That's the key finding from a Morgan Stanley survey of 150 CIOs -- 100 in the U.S. and 50 in Europe -- from companies with annual revenue between US$500 million and north of $20 billion.

The forecast increase is similar to the growth these companies experienced in their external IT budgets in 2013 compared with 2012, according to the survey, results of which were released on Tuesday.

The 4.6 percent IT spending increase in 2013 was steeper than the previously projected 4.3 percent growth and ranks as the highest growth rate since 2008, according to the study, titled "Entering 2014 With a Head of Steam: 2013 IT Budget Strength Expected to Sustain."

"Improved 2013 spending was broad-based, with each technology sector seeing an upward revision, and all sectors are expected to see in-line to slightly better growth in 2014," the 85-page report reads.

U.S. CIOs expect their external IT budgets to increase 4.8 percent this year -- compared with a 5.2 percent increase in 2013 -- while European CIOs expect a 3.7 percent increase, compared with a 3.5 percent increase in 2013. The surveyed CIOs' "spending mindset" continues to shift toward growth investment and away from cost-cutting.

Projects that will see the largest percentage increases in spending this year will involve cloud computing and data analysis. Companies are moving more applications from on-premises servers to vendor data centers. They are also investing in ERP (enterprise resource planning) implementations, data warehouses, business intelligence tools and analytics wares.

Currently, 70 percent of respondents' application workloads reside in on-premises servers, but they said they expect that to shrink to 61 percent by the end of 2015. In that time frame, they plan to increase the share of application workloads in public clouds from 10 percent to 18 percent. They also said they plan to increase application workloads in managed hosting services from 7 percent to 9 percent, while reducing them in collocation facilities from 13 percent to 12 percent.

At the other end of the spectrum, spending on PCs, mobile devices and consulting and outsourcing are at the bottom of the priorities list for CIOs.

When asked which projects they are unlikely to cut in the case of financial pressures, CIOs put at the top of the list essential "mission critical" systems, security products and ERP, and at the bottom cloud computing, consulting and outsourcing, plus new initiatives.

Other findings from the survey:

-- Increased spending on cloud computing will come at the expense of server and storage device purchases.

-- As the popularity of BYOD (bring your own device) policies grows, corporate spending on mobile devices, particularly tablets, is falling.

-- CIOs plan to slightly increase the percentage of the PC installed base that they refresh this year, as the expiration of Windows XP support approaches in April.

Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.

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