FEBRUARY IDC FUTURESCAN. Buyer Expectations Buck The Economic News
These are external indicators only and don't represent IDC's forecast for the market, which is based on many more inputs and which relies on strict methodologies and market definitions.

IDC's FutureScan: 01 Feb 2006

FRAMINGHAM, Mass., February 1, 2006 – Even as the U.S. government is issuing its statistics for fourth quarter GDP growth in the U.S. of 1.1%, IT buyers and executives are telling IDC that they expect spending to rise over seven percent in the next twelve months. This is up three percentage points from last month's IDC FutureScan.

"The key to this reversal may be in the continued low unemployment figures and the internalization of higher oil prices," says John Gantz, IDC's Chief Research Officer. "Of course it could just be that this population of survey respondents was unduly optimistic."

In fact, notes Gantz, the economic indicators, such as the stock market, GDP and profit forecasts, are all quite similar to 2005. Yes, the stock market may be going up, but profit and GDP growth forecasts for 2006 are down from 2005.

IDC's own forecast for IT spending growth in the U.S. over the next 12 months is 5%.

Other IDC research shows that U.S. business executive priorities for IT this year will center on improving customer care, supporting product innovation, and improving sales productivity and performance (see Frank Gens' IDC eXchange blog, "Product Innovation and Improving IT Are Rising As CEO Priorities in 2006," January 5, 2006).

"These priorities are all on the 'grow revenue' side of IT rather than the 'cut costs' side," says Gantz. "This may be one of the reasons IT buyers see so much daylight ahead. But a year ago IT buyers were also expecting a seven percent rise in spending, at least two percent of which never materialized. We'll stick with our forecast, which is based on thousands of inputs beyond customer sentiment, from IT supplier capacity and technology breakthroughs to channel and pricing dynamics, demographics, regulatory change, and myriad other forces on the market."

FutureScan is a set of market metrics that measure supply and demand in the IT industry based on leading indicators and customer surveys. Values reflect expectations of future growth, with an index value of 1000 indicating zero growth and each additional 10 points representing roughly 1% of expected growth or contraction.

For February, Buyer Intent, which reflects market demand for IT products and services over the next 12 months, jumped to 1978 from 1047 in January. The Market Indicators number, which combines input from economic and IT industry revenue forecasts, moved slightly up from 1051 to 1057.

FutureScan results for February and prior months can be viewed at www.idc.com/futurescan.

For more information about FutureScan, or any other products from IDC's Global Research Organization, please contact Amie White at 508-935-4653 or awhite@idc.com.


This Month Whatever detente between buyers and the outside world that existed last month has evaporated. The two indicators are no longer in perfect alignment, as we predicted they wouldn't be last month.

Yes, both indicators went up, but buyer expectations for IT spending in the next 12 months jumped over three percentage points. It can't all be the move from January to February as a base month.

Still, maybe the buyers are right. Bird flu won't spread, the housing market won't tumble, and oil prices will stay where they are. Maybe.

And maybe buyers were reading the news reports about the hefty growth in the Conference Board and the University of Michigan consumer confidence indices, and not the government reports on Q4 GDP.

But we wouldn't go crazy yet. Taking in all its inputs, IDC still calls for modest growth in U.S. IT spending next year



Although there are emotional components to FutureScan's measure of macroeconomic conditions ヨ most notably in the stock market, and to a lesser(?) extent in Wall Street forecasts of vendor revenue ヨ the macro metric has been boringly consistent for half a year.

Meanwhile the buyer sentiment goes up and down ヨ with the Katrina-oil-prices dip pretty pronounced last fall.

So this month the buyer sentiment metric takes a position above the macro line ヨ where it lands about 50% of the time.

Note that this month's survey was fielded before the government came in with its report of a measly 1.1% GDP growth for Q4 2005 over Q4 2004, so our respondents did not have that sobering news before them when they gave us their opinions.

Buyer Intent History:

Line of business executives switched position this month, a reversal that may say more about the variability inherent in survey responses than any real sudden reason for irrational exuberance.

CIOs, at least remained calm, cool, and collected. Just what you want in a CIO.

Our experience with these surveys is that at least half the volatility in expectations come from the margin of error in the survey process, the other half from actual changing expectations.

Our fear is that, given the economic news

These surveys are projectable samples weighted by IT spending by size class, but they are administered to different executives each month.

Market Indicators History

Ho hum.

The stock market is not going crazy and vendor revenues are not cratering. A few years ago both would be news.

And ho hum is what we predicted for the macroeconomic indicators last month. At least vendor revenue forecasts have trended up in line with the rise in this month's buyer expectations. The macroeconomics trend continues to balance rising interest rates and lower GDP and profit growth forecasts for 2006 and 2007 with steady stock market improvement.

Our prediction about the market indicators next month. Hmmm, not ho hum. Let's see how the latest government reports on Q4 GDP (1.1%), inventories (going up), and profits (flat or down) percolate into the market.

ヨ lower GDP growth expected for 2006 than 2005 and decelerating profit growth ヨ this month's bright buyer expectations will dim over the year into some kind of self fulfilling prophesy.
ヨ around 5%. And since no single measure can confidently predict future IT spending, we'll believe our own forecasts.