While total corporate spending may not change much, companies like Klimke's Network Appliance will shift their focus, spending more on security and backing up data. Software and computer vendors may also reap the benefits of increased federal-government spending on defense in the wake of terrorist attacks of Sept. 11.
State governments, like many corporations, aren't planning to spend more. They'll report the smallest revenue gain this year since 1990 and budgets are shrinking as increased firings and fewer stock options led to a drop in tax dollars.
Colorado's budget surplus, for example, will fall to US$16 million next year from US$927 million this year. When money is tight, funding for PCs and software gets hurt disproportionately, state officials said.
"It's a lot harder to cut health insurance for children than PCs for state workers," said Phil Windley, Utah's chief information officer. While Utah's budget will take a 4 percent to 5 percent hit, the state's technology spending will drop 8 percent to 9 percent, he said.
Spending on less expensive projects, such as software, will come back earlier than big-ticket products like servers and communications gear, said Alan Loewenstein, co-manager of the US$1 billion John Hancock Global Technology Fund. His picks include data-storage software maker Veritas Software Corp and Siebel Systems Inc, whose programs let companies manage customer service and sales.
Businesses may gradually start replacing their PCs with newer models based on Microsoft's Windows XP operating system, investors said. Dell Computer Chief Executive Michael Dell last month said he expects a surge in PC buying in the middle of next year because most corporations haven't upgraded since before the year 2000 date change.
Dell estimated that there are 70 million PCs that are more than four years old, and executives including Intel Chief Financial Officer Andy Bryant have plans to buy new PCs for workers next year.
"When sales do pick up, there's going to be pent-up demand, and they'll actually pick up a little more than people anticipate," said David Katz, chief investment officer at Matrix Asset Advisors Inc, which manages US$750 million in assets.
In the end, businesses will conclude that they have to invest even if the recession lingers, in order to stay ahead of rivals and win sales, shareholders said. "It reaches a point where someone realizes they can get a competitive advantage by spending," Cohen said. "That forces their competitors to resume that arms race."
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