IDC stands by its growth predictions for IT market

Six months after predicting a return to growth for Canada’s IT industry, research firm IDC Canada Ltd. said recently that it stands by its predictions, and offered its 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 in a conservative buying mode.

“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 mindset 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 recent 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, plus 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 backup, 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 market will grow at a 3.8 per cent compound annual growth rate through 2008. Those who are buying are looking to maintain what is installed, as well as integration and management of software and the ever-present quest for new functionality. Still, complexity, excess capacity in terms of unused seat licences, 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, and taking with it some of Microsoft Corp.’s Windows market share in the process, IDC revised that finding. The firm says Windows is no longer losing ground to Linux, but rather Unix is now taking the brunt, although IDC said it believes that progress toward a true open source environment is moving at a slower pace than originally anticipated.

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 to redesign some if not all of their business processes, not to 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.

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