Economic slump stuns IT sector

The one-two combination of an economic slump and the Sept. 11 attack has sent the Canadian tech sector reeling, but not yet down for the count, according to a recent market assessment by IDC Canada.

The Toronto-based consulting firm on Wednesday released its assessment of a slowing growth rate for Canada’s IT sector. IDC Canada analyst Vito Mabrucco said that the Sept. 11 attacks came in the midst of an inevitable economic downturn and helped accelerate a declining growth rate.

Canadian IT spending will see a $10 billion reduction for the years 2001 to 2003, IDC Canada said. Despite predictions of slower growth, the Canadian IT market is still projected to be a $136 billion dollar industry.

“The reason why there will still be some amount of growth is that customers still need to invest to reduce the cost of their infrastructures,” Mabrucco said. “In fact, they may need to invest more in some cases to focus on efficiencies because as they reduce the number of people, they need to still run the business.”

The Canadian IT market is now expected to grow at 3.5 per cent this year and five per cent next year, versus earlier, higher market predictions, IDC Canada said. In contrast, the U.S. tech sector will see negative growth this year and only two per cent in 2002.

Relative stability in the Canadian public sector and financial services industries is an advantage for the Canadian IT market, Mabrucco said.

“The public sector in Canada in larger than in the U.S., so the spending in public tends to be more stable and not as affected by bottom-line driven decisions,” Mabrucco said. “Also, the U.S. is coming off a high growth year because of the dot-coms and Canada did not have that.”

The assessment noted the software and services sectors are still expected to stimulate growth and have continued to have yearly growth rates of eight per cent or more. Hardware manufacturers will be hardest hit, as growth rates are expected to decline through to 2002, IDC Canada said.

“Without revenues increasing from consumers and buyers alike, there is not a need to add server capacity. If there is going to be spending in servers it is going to be mainly to replace older technologies or to consolidate smaller numbers of servers into larger servers,” Mabrucco said.

IDC Canada predicts the IT market will weather current economic and political challenges and in time reach new levels of growth. The three-year scenario forecast is based on observations from over 100 analysts in the IDC worldwide group, including over 20 Canadian analysts.

“By 2003, we expect growth rates to be back to the eight to 10 per cent range,” Mabrucco said.

He added that the Sept. 11 attack has possibly quickened the rate of decline, which might allow the IT market to bounce back sooner.

IDC Canada is Toronto is at