>GLOBAL TECHNOLOGY: CIO NOTES (CLSA)

Accounting for two-thirds of global IT-spending, enterprises are the real engine of technology into 2010-11. After a 14-28% collapse in 2009, a phoenix-like revival is at hand, driven by improving corporate cashflows and ageing installed hardware. We consider server virtualisation a likely success, but security and control issues are troubling cloud computing, delaying its mainstream adoption (and thus reducing the likelihood that it will disrupt a spending revival). More than 40 stocks stand to benefit.

Enterprise is the engine
■ Enterprises account for 65% of IT-hardware spending, 71% of telecom equipment, 85% of software and almost all of IT services.

■ Our analysis of global IT-spending data shows an unprecedented collapse in recent years, with enterprise-hardware expenditure down 21% YoY last year.

■ Unlike consumer tech, where China and Asia-Pacific are surging, North America and Western Europe account for 66% of enterprise spending. For a revival, look West.

The case for a revival
■ For more than five decades, corporate cashflows and profits have been useful lead indicators for IT spending - and these are now reviving.

■ By 2011, 84% of the installed base of enterprise-desktops will be five years old.

■ Delaying “PC refresh” converts capital-cost savings into higher operating expenses.

■ A rise in notebook replacements is encouraging (51m units in 2009; 29m in 2008).

■ Offshore outsourcing of IT services, such as to India, is saving US$8bn-10bn each year; this can finance 4ppts hardware-value growth, even if budgets stay flat.

The case against
■ Upgrading to a new operating system such as Windows 7 without a “PC refresh” carries substantially higher migration costs.

■ Although server virtualisation is likely to be successful, the utopian dream of cloud computing is troubled by security, compliance, control and regulatory issues.

Long list of beneficiaries
■ The debate over enterprise spending is the No.1 tech catalyst in 2010-11.

■ Enterprise-spending stocks have underperformed over recent years.

■ More than 40 stocks stand to benefit from an enterprise-spending revival.

To read the full report: GLOBAL TECHNOLOGY