As economic recovery continues to edge its way along a bumpy path, IDC Canada recently tried to give a clear view of the current state of the IT market in Canada, the U.S. and the globe.
Vito Mabrucco, group vice-president of the products and services research group for the Toronto-based analyst firm, said the future could be bright, but it will take a bit of work to get there.
But first, a look to the past. Mabrucco noted that many people feel the IT market has hit a low point that it will not be able to recover from.
“But when we look back over the previous 40 years, we see that we’ve been there before,” he said. “We’ve been through many cycles before and there are lots of peaks and valleys.”
When people say that they haven’t seen anything like this, or that it’s the worst, they haven’t taken into account what’s been happening for the past 40 years, Mabrucco told those listening in on the conference call and Web presentation.
Ross Marsden, senior vice-president of business engineering for CGI in Toronto, was one of those listening and he noted it’s important to remember the past before trying to determine the future. He said that type of holistic approach gives a lot of clarity.
“Looking at the past 40 years and those things that impacted IT… I find it reassuring because I’ve lived through those phases,” he said.
Mabrucco said IT spending hit its first driver with mainframes, which led to departmental computing, which led to personal computing, which led to the current and future spate of wireless devices and other gadgets.
“Computing is really driven when computing goes where computing isn’t,” Mabrucco said. Still, he added that none of the old stuff goes away. That complexity, having all these different paradigms, is hurting the computing industry.
There is a need to simplify old environments, to make sure applications are connected and at the same time to bring in new technology.
Mabrucco and his team broke their state of the union presentation into a forecast and a look at the downside.
In its forecast, IDC Canada saw economic growth over the next three to five years in the three to four per cent range.
“Profits continue to improve – albeit from a low base – even though profit growth often comes from cost-cutting,” Mabrucco said. Profits could come from price increases, but a downside assumption is that vendors will not be able to raise prices and there will be some unpleasant surprises on profit reports.
Mabrucco said the IT market is maturing. It’s looking to redeem itself from the excesses of the past and looking for the next big thing. The downside version of the IT market is a crisis of confidence in technology.
The telecom industry is still struggling, although there is growth in terms of service offerings. However, there is the potential for more bankruptcies and the deep competitive nature of that market could hurt it in the long term.
Mabrucco said IDC is still assuming that consumers will hold their own, although there is a downside that they are saturated and have a high debt load.
“Probably the most important is the business investment plans. We assume they will spend with the recovering economy. On the downside, business investment continues to remain in depression mentality.”
In terms of killer apps, Mabrucco said there are none.
Looking at IT budgets, there is some confusion, as IDC’s CIO polls show that month after month CIOs say they will spend more than they actually do, yet CIOs continue to predict increases. “Are they playing out a self-fulfilling prophecy or is there a need for an expectation adjustment?” Mabrucco asked.
New projects and outsourcing deals are what generate growth in IT, he said. A large portion of IT is dedicated to keeping the lights on or to previously committed projects. A potential precursor to a lower spending environment is when new project sizes get smaller.
Mabrucco stressed that a larger market with a lower growth rate can have greater absolute growth than a smaller market with a larger growth rate. In the first stage of growth there was $30 billion added to IT. When the market moved to 10 per cent , there was still $50 billion to $60 billion, now with smaller growth rates, it’s still resulting in increased market spending.
“Will the IT industry ever reach double digit growth again? Probably not. But of course, there are still a large number of markets growing at double digit rates,” Mabrucco said.
He noted that in late 2001/early 2002, IDC Canada downgraded their forecasts for the Canadian market, when they realized a second half recovery was unlikely.
He predicted strong growth for outsourcing and services, even suggesting that some Telecomm companies may move more toward those offerings. Software deployment and support were strong in both the forecast and downside scenarios as well.
Early in the new year, he said IDC Canada expects to update their forecast and close out 2002. He said it is likely that the forecast will trend to the downside.
Hardware growth was expected to decline in Canada in the U.S., but worldwide there could be a rise as developing countries start to purchase more.
Mabrucco noted that in a downside scenario the total spending for five years would be $175 billion, whereas the forecast would have it at $194 billion.
“That’s a difference of $19 billion. Still, the downside is still greater that total spending of the previous five years, which was about $150 billion. The market continues to get larger because IT spending continues to occur and the growth rate just adds to the total market spending.”
The IDC Canada forecast is of gradual recovery, assuming the stability of the assumptions. The worldwide market is being driven outside of North America.
Marsden said he walked away from the conference call feeling positive.
“The growth rate was lower, but there is a substantive amount of business out there over the next few years,” he said. “The quantitative growth was positive.”
