After three years of decline, technology sales started to rise again in 2003 and are even higher in 2004. These increases in corporate IT budgets are well known. Less visible is the surprising good news that over the next two years, some technology vendors could see their revenues leap to levels well above those predicted by many industry observers.
Where is this windfall coming from? Improvements in the general economy have clearly loosened up IT budgets, which are growing at 3.4 percent a year on average for Fortune 500 companies, according to conversations with their chief information officers (CIOs).1 One source of this good fortune is the recent boom-and-bust cycle's "echo effect," which should raise capital spending on technology by as much as 12 to 13 percent this year. Such spending peaked in 2000, only to drop by more than 15 percent the following year—the first annual decline in nearly half a century (Exhibit 1). Most Fortune 500 companies use accrual-based accounting, which depreciates IT assets over three to five years, to budget for IT. This depreciation is now rolling off the books, making room for new spending during the next two or three years—until budgets are filled...