IDC: Growing pains happening within IT

The Canadian IT sector is set to experience slower growth than ever before, said a Toronto-based research company in a new report.

Analysts from IDC Canada Inc. presented The Future of the Canadian IT and Communications Market Forecasts 2003-07 on Tuesday and Vito Mabrucco, group vice-president for IDC Canada said a couple of factors are to blame for the slowdown.

“The maturity of the industry is a factor – it’s getting bigger so growth rates will decline,” he said on Wednesday. “The market is still viable, but the sense right now is that businesses clearly are in a cutting back mode.”

Spending within the industry is not declining dramatically, but Mabrucco said the money going into the industry is relatively flat year-to-year spending, adding there is still opportunity to excel within the industry if you can capture the market where the money is being spent.

IDC is forecasting that total IT market spending in 2003 will be about $35 billion. That overall spending will eventually grow to about $40 billion in 2007.

Last year, spending in the industry was about $34.8 billion, so the growth rate from last year was also very low, Mabrucco said. The industry only experienced a two per cent increase in spending this year over last year.

The overall IT sector, including software, hardware and services such as telecommunications, will experience a compounded annual growth rate (CAGR) of 2.5 per cent until 2007. Mabrucco said this growth rate is consistent with the gross domestic product (GDP) predicted by Canadian economists.

The thorn in IT’s side is the hardware market, which is generally declining in terms of revenue. The market is expected to grow at 0.2 per cent per year, but the company is forecasting that the market will shrink to $2.8 billion by 2007, down from a 2003 prediction of $3.45 billion.

A big reason for the decline is the server and PC market, Mabrucco said. “The market is reaching saturation in terms of new PC buyers and now we are into a replacement market,” he said. “Customers are just being more careful about replacing. There’s not a driving, burning need to replace a lot of systems right now. The PC life-cycle is lasting longer than it used to and revenues are declining about four to five per cent.”

Mabrucco said there is no killer app.

On the other side of the industry, the software sector is continuing to grow at about two or three per cent each year, and will likely reach about $3.1 billion by 2007.

“For the software market, that’s a significant decline from the 10 per cent days,” Mabrucco said. “Software is being sold on more incremental deals,” while in the past the software would have been sold in much larger segments.

In addition, the IT service sector is relatively healthy with annual growth of about four per cent, representing about 50 per cent on total spending in IT.

“Within services there are some markets that are flat and declining such as consulting and integration but then there’s some markets such as outsourcing which are growing very significantly,” he said.

IDC is forecasting growth within outsourcing to be at about eight per cent per year.

“Outsourcing is still very hot, so are areas such as software support services which software supports are required because software continues to become complex and so there is still opportunity there,” Mabrucco said.

Mabrucco says the days of IT being a double-digit industry are in the past, calling IDC’s forecast for 2007 “the new reality.”

He says the IT sector can no longer be looked at as a total market, but it needs to be divided into smaller markets, such as hardware, software, application management and system infrastructure services.

“Overall the market will never grow to double-digits again, but within that there are large markets that will grow,” he said.

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