IDC predicts continuous growth for Canadian IT market

Research and analyst firm IDC Canada Ltd., predicted in January that the Canadian IT market would return to growth through 2004 after seeing less than impressive revenues through 2002 and 2003. During its mid-year update Wednesday, the firm said it stands by its predictions and offered some insight into how the market has unfolded since January.

In general, the future looks bright on the Canadian IT landscape, although prices, excess capacity and competition wars are keeping Canadian companies conservative.

“The wait is over,” said Dennis Vance ,group vice-president, Products and Services Research with IDC Canada in Toronto. “Growth is not huge, but it seems to be solid. The challenge is to change the mind set of trying to hold on to what we have to (a mindset) of leading the market in recovery.”

According to Vance, despite some “wild card” challenges including the strong Canadian dollar, high oil costs and the upcoming Federal election, the Canadian IT sector is recovering mildly, yet continuously.

“We have revised our forecast marginally upwards,” Vance said. “We have tweaked up from 2.4 per cent annual compound growth to 2.7 per cent. This is a replacement market. Pent up demand and competitive market threats…(are) contributing to IT market spending.”

IDC broke its review into 10 sub-topics, exploring the hardware, software, services, open source, customer, telecom, consumer and business segments in addition to overviews of the Canadian productivity challenge and the CEO-driven agenda. The Canadian hardware market has grown slightly thanks to the introduction of more entry-level servers, new storage appliances as well as new networking equipment. In fact, Vance said that the networking and devices market has been increasing both in revenues and shipments in Canada.

Still, the hardware market does not come risk-free. IDC said that excess capacity and management issues in terms of back-up, security and support will continue to challenge hardware growth.

“Users are now prepared to spend more freely,” Vance said. “But we also caution that they haven’t opened the door to the company vault.”

In the software arena, growth rates are much slower. IDC predicts that the Canadian software market will grow at a 3.8 per cent compound annual growth rate through 2008. The software market drivers remain the continued need to maintain what is installed, in addition to integration and management of software and the ever-present quest for new functionality. Still, complexity, excess capacity in terms of unused seat licenses, and licensing issues linger.

“There are no ‘killer’ applications, but there are indications that businesses are looking for new functions to (address) new needs,” Vance said.

One of the big market bets is on Linux and open source software. While IDC reported evidence of Linux moving into “prime time” in January taking with it some of Microsoft Corp.’s Windows market share, Wednesday’s summary sang a different attack tune. The firm reported Windows is no longer losing ground to Linux, but rather Unix is now taking the brunt, although IDC said it believes that progress toward true open source is moving at a slower pace than originally anticipated.

Likely more surprising is the slowing growth in the IT services market. While IDC’s January forecast put services as the leader of the pack in growing the Canadian IT sector, the firm has the market slated for a satisfactory four per cent annual compound growth rate through 2008, despite the increase in IT and business transformation outsourcing. Vance reported that one third of companies that currently outsource are looking redesign some if not all of their business process, not simply upgrade them.

IDC said there is opportunity for professional services firms to do well by focusing on business intelligence, infrastructure, public sector and finance services. The firm also spoke to the “buzz” around radio frequency identification (RFID), but noted that there is little services revenue coming from the technology.

There was good news for the telecom industry. IDC predicts annual spending will stay steady at $5.6 billion each year through 2008, thanks to a slight increase in spending on telecom equipment and services. While data, Internet and wireless services will also contribute to the steady growth in Canadian telecom, local and long distance services will reap low revenues.

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