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The Survivor's Guide: Will Vendors Be Less Flexible This Year?

Predictions abound that we'll see a modest increase in business technology spending in 2004, coupled with a a decrease in discounting.

Amid signs that the U.S. economy is waking up from its three-year slumber, predictions abound that we'll see a modest increase in business technology spending in 2004. Some analysts and IT chiefs expect that as demand rises, discounts will fade away.

"Any CIO planning for 2004 should expect to find a less friendly market," says Gartner analyst Martin Reynolds. "Vendors will be less flexible." Vendors don't publicly disclose the size of their breaks, but heavy discounting reveals itself in an upturn, when vendors' earnings grow faster than revenue, Reynolds says.

To get a sense of just how steep the discounts have been, ask Niraj Patel, CIO of GMAC Commercial Holding Corp. in Horsham, Pa. Low interest rates have kept business brisk for the commercial lender, whose IT budget rose 10 percent in 2003, to $60 million. Yet the IT department's actual spending was 20 percent below budget at the start of the fourth quarter, Patel says.

"It's like, geez, you have some money but you can't spend it because everything's cheaper," Patel says, followed by a sinister laugh. "It's so cool!"

Patel's 200 IT professionals rolled out voice over IP and MPLS (multiprotocol label switching) this year, and they're rapidly adding Cisco 6500 switches across the enterprise to increase bandwidth. The new equipment will support video-streaming and business intelligence software projects already under way.

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