U.S. and European IT budgets are expected to fall 2 percent over the next year, less than the 5 percent decline expected three months ago, according to a survey of 100 chief information officers carried out by UBS.

U.S. CIOs were less pessimistic, expecting a 1.3 percent decline in budgets, while their European counterparts predicted a 3.4 percent fall, according to the Swiss bank's quarterly survey published on Monday.

We continue to believe corporate IT budgets are under tight CFO scrutiny and likely down 5-10 percent in 2009, UBS wrote after surveying 60 U.S.-based CIOs and 40 of their European counterparts over the past six weeks.

While 2010 remains a wild card, the better... spending outlook versus our prior survey three months ago suggests that CIOs may be looking at 2010 as a potentially better year for overall corporate spending.

The pace of decline in hardware spending is seen slowing as companies are gradually moved to replace aging personal computer systems that are three to five years old, with buying activity gathering pace in mid-2010, UBS found.

Goldman Sachs said earlier this month it expected the depressed hardware sector would be the number-one area for investment when the economy and IT budgets improve, well before software, networking equipment and services.

UBS said the CIOs expected to spend most on Hewlett-Packard hardware and least on equipment from Sun , which is being bought by Oracle . Personal computer maker Dell's pricing was seen as the most aggressive in the last six months.

Dell's finance chief told Reuters last week he expected significant corporate IT hardware upgrades to start from the middle of 2010 at the earliest, and stressed the difficulty of trying to predict when the replacement cycle would resume.

Intel last week posted forecast-beating results and guidance thanks to better-than-expected consumer demand for PCs, especially in Asia, in a strong showing that came despite what the chipmaker described as weak demand from corporations.

CISCO SEEN SUCCEEDING

In networking, 77 percent of respondents in the UBS survey said they expected to buy or evaluate Cisco's Unified Computing System, announced in March, in the next 18 months, seeing it as more likely to succeed than HP's rival offerings.

Cisco's new system incorporating computing, storage and virtualization underscores the industry's focus on data centers as a key growth area as companies look for ways to deal with exploding Web traffic, rising energy bills and strained budgets.

Juniper's rival switching equipment is also seen as gaining ground, with 11 percent of CIOs planning to deploy its EX LAN switch, which currently has less than 1 percent share of the Cisco-dominated market.

In software, the CIOs said they generally expected to spend less across a range of vendors, although they would likely spend more on Microsoft , SAP , Citrix and Oracle, in that order.

In IT services, discretionary spending trends were seen improving in the United States but deteriorating in Europe. Services that lower costs and provide a quick return on investment still took priority.

(Reporting by Georgina Prodhan; Editing by Marie Maitre)

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