CFOs Cautious About Recovery

By SamuelGreengard

The GreatRecession, along with radical changes in technology, has forced companies tosignificantly alter the way they approach business. It has left manyorganizations timid about making necessary investments and grappling with anarray of process changes.

Notsurprisingly, a recent GE Middle-Market CFO Survey found that the lingeringeffects of the global downturn persist, and tech CFOs are sending mixed signalsabout the months ahead.

GE Capitalfound that tech CFOs are increasingly "optimistic about the current stateof their own industry and the U.S. economy, but they’re significantly morepessimistic about the global economy,? states Michael Zimm, senior technologyand business analyst with GE Capital’s commercial lending and leasing business.Just over one-third of respondents (35 percent) expect their industry to expandover the next 12 months. The figure dropped by one point from the third quarterof 2011.

Altogether,61 percent of CFOs anticipate greater revenue in 2012 compared with 2011, while24 percent expect revenue to remain flat. Meanwhile, 46 percent expect profitmargins to remain stable this year, up 13 points from the third quarter. Thoseexpecting greater profitability shrank from 38 percent in 2011 to 33 percent in2012.

In addition,among the nearly 500 CFOs surveyed across all industries, 51 percent expecttheir corporate IT spending budgets to remain the same this year, up 8 pointsfrom the third quarter of 2011. Thirty-nine percent expect an increase, down 9points from the previous survey. And 8 percent expect a decrease, a figurethat’s unchanged from the previous survey.

Thesenumbers are revealing, Zimm says: "While IT vendors feel that the U.S.economy may have hit bottom, the fact that many of their customers are globalin nature" is significant. Many are "wrestling with still unresolvedglobal macro and geopolitical issues. This means that any recovery in the ITspending environment is likely to be a slow and uneven grind, rather than aquickly rising tide that lifts all boats."

Over thepast six months, business conditions and the outlook for midmarket technologyand business service companies have mirrored the improvements in most domesticmacro indicators, he notes. And while IT spending in the U.S. and abroad shouldapproximate 1 ? to 2 times GDP growth, these and other projections couldchange. That’s because "unresolved sovereign debt and other geopoliticalissues are a threat to a still-modest and arguably fragile macro recovery and,likewise, discretionary IT spending."

Zimm findsit somewhat surprising that sentiment among CFOs at small and midsize ITvendors was not more positive. He posits that smaller IT vendors may be alagging indicator of the economic recovery.

Theindustries most likely to increase IT spending are health care (54 percent ofrespondents) and retail (48 percent). These areas "may presentopportunities for tech companies that are looking to prospect for new businessin those verticals," he concludes.