By Wallace Witkowski, MarketWatch
COVID-19 is already beginning to weigh on corporate IT security budgets, but as millions work from home, one survey is finding a spending shift to cloud providers and security and away from PCs and servers.
Of 50 chief information officers surveyed, 23, or 46%, expect the pandemic to drive a decline in IT spending for the year even though the official outlook remains at 5% growth for the year, according to brokerage firm Instinet. On the other hand, 20% expect to increase their spending.
“Our semiannual mid-March CIO survey is one of our first tangible data points that the coronavirus crisis is weighing on budgets,” Instinet analysts wrote in a Thursday report.
Instinet said that 40 of the 50 survey responses came after March 11 “before full lockdowns hit, though well after social distancing commenced.”
Of the CIOs surveyed, 68% expect to cut funding for PCs, while 48% expect to lower funding for AI, and 48% expect to lower funding for servers in a downturn. On the flip side, 86% said that security was now a higher budget priority and 68% said cloud services would become more of a priority.
“The data suggests a pivot to cloud, and perhaps, more public cloud,” Instinet said. “CIOs expect to reduce their mix of on-prem workloads from 59% in 2019 to 35% in 2021.”
“We have theorized the crisis could accelerate the cloud migration,” Instinet said. “We expect firms with public cloud exposure will emerge stronger from the crisis.”
Instinet said that preferred cloud providers remain Microsoft Corp.’s /zigman2/quotes/207732364/composite MSFT +0.04% Azure and Amazon.com Inc.’s /zigman2/quotes/210331248/composite AMZN -0.40% AWS as opposed to cloud services offered by Oracle Corp. /zigman2/quotes/202180826/composite ORCL +0.77% , Alphabet Inc.’s /zigman2/quotes/205453964/composite GOOG +0.54% /zigman2/quotes/202490156/composite GOOGL +0.46% Google, and International Business Machines Corp. /zigman2/quotes/203856914/composite IBM -0.61%
When it comes to chip makers, the balance of sales is divided between PCs and on-premise servers as opposed to sales to data centers that power cloud services. As far as chip companies go, Instinet said that while PC and server spending is an offset to both Intel Corp. /zigman2/quotes/203649727/composite INTC +0.44% and Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD +0.95% , a decline in AI spending poses a risk to Nvidia Corp. /zigman2/quotes/200467500/composite NVDA +2.86%
Companies that are more exposed to private cloud and on-premise spending — namely, Cisco Systems Inc. /zigman2/quotes/209509471/composite CSCO +0.58% , Hewlett Packard Enterprise Co. /zigman2/quotes/201998588/composite HPE -11.49% , and Dell Technologies Inc. /zigman2/quotes/203822527/composite DELL -2.97% — are more likely to lag, Instinet said.
For the year, the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX +0.63% is down 20%, the First Trust Cloud Computing ETF /zigman2/quotes/205187458/composite SKYY +1.09% is down 13%, and the iShares Expanded Tech-Software Sector ETF /zigman2/quotes/201870252/composite IGV +1.19% is down 13%. In comparison, the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.24% is down 22%, and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.43% is off 17%.