CIOs Not Planning to Bail Out Consumers

By William Trent, CFA of Stock Market Beat

With indications of a consumer spending slowdown building, hopes for real GDP growing at 2.5% must anticipate a fairly significant contribution from business spending (since the consumer accounts for roughly two thirds of the economy.) However, the latest poll of Chief Information Officers (CIOs) by CIO Magazine does not paint a particularly rosy picture. In fact, the only thread on which the bulls can cling is that CIO sentiment is frequently more of a lagging than a leading indicator of tech spending. As evidence, consider this quote from the poll findings:

In the December Poll, panelists project IT budgets will grow by 5.8% over the next 12 months, down from 6.5% in the September poll. In addition, CIOs report that IT budgets increased by an average of 5.8% over the last 12 months, up from 5.0% last quarter.

Hmm… the estimate for the next twelve months happens to be exactly what happened over the last 12 months? Definitely has the ring of a lagging indicator. But regardless, the results offer something of a glimpse into CIO plans.

Findings from the quarterly CIO Magazine Tech Poll(TM) show IT spending projections decreased in October-December with CIOs predicting IT spending increases of 5.8% over the next 12 months, down from 6.5% in the previous quarter. Poll results also show the majority of CIOs (63.6%) have no plans to invest in Office 2007 or Vista 2007 next year. Key focus categories of growth are Computer Hardware, Storage and Security.

So mixed news for Microsoft (MSFT) and a glimmer of hope for DELL. Since storage and security have recently been key spending areas anyway, it is hard to say whether calling them a focus area means improvement or not. As evidence, consider this quote from the poll findings:

In the December Poll, panelists project IT budgets will grow by 5.8% over the next 12 months, down from 6.5% in the September poll. In addition, CIOs report that IT budgets increased by an average of 5.8% over the last 12 months, up from 5.0% last quarter.

Hmm… the estimate for the next twelve months happens to be exactly what happened over the last 12 months? Definitely has the ring of a lagging indicator.

The CIO Magazine Tech Poll results are used to construct the CIO Magazine Tech Future Growth Index (TFGI), which projects IT activity over the next 12 months1. In December the TFGI is 2.3, down from 2.5 in September.

The problem is, even if considered as a contrary indicator, the stock market hasn’t priced much calamity into tech stocks of late.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; FedEx (FDX) put options; Intuit (INTU) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Ceradyne (CRDN) put options; Dell (DELL) put options; Plantronics (PLT) put options

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