Limited Canadian IT growth predicted

In an analysis of the Canadian IT market for its U.S. and international clients, Forrester Research is projecting a moderate increase in Canadian IT spending of four per cent in 2006, continuing two years of slow growth.

By category, Forrester is projecting eight per cent growth in spending on communications equipment and a four per cent increase in spending on computer equipment and software.

The top priority for Canadian companies in 2006 is consolidating IT infrastructure, cited as critical by 23 per cent and somewhat important by 38 per cent, followed by compliance, primarily Sarbanes-Oxley.

Forrester analyst Andrew Bartels said when compared to the U.S., Canada’s growth rate is slow but has been more stable. During the economic downturn, spending did not drop as far as it did in the U.S., so in Canada the rebound has been shallower.

Bartels said Canada is a tale of two regions: the West and the East. In the East, dominated by the manufacturing sector, business has been slow with the high Canadian dollar hampering exports. In the West, the high commodity prices have the resource sector booming.

That’s reflected in the optimism Canadian businesses have for 2006, but overall a good year is expected. More than half of Canadian businesses think 2006 will be a somewhat good or very good year, similar to the U.S., but more than twice as many Canadian as American businesses put themselves in the very good category.

While optimism varies by region, Bartels said IT spending plans do not. In the East, the dollar and slowing business have organizations being cautious. In the West, despite the oil boom, Bartels said many companies are reluctant to take on long-term capital costs for fear of the resource boom and bust cycle.

“There’s a psychological barrier there,” said Bartels. Besides security, which has been a steady area of investment, Web applications is one of the few areas Forrester is projecting significant spending increases in 2006. Some 11 per cent of companies said they planned to spend much more in the area, while 32 per cent planned to spend slightly more. “Companies are realizing that the Internet really is for real,” said Bartels. “It’s not so much new technology but a wider realization that this stuff is worth investing in.”

Broadly speaking, Bartels said globally the economy is in a period of tech digestion. Based on past experience with the mainframe and PC eras, these digestions take about eight years, meaning we’re in for two more years of moderate growth before things rebound around 2008, he said.

Around that time, Bartels said Forrester is projecting strong investment in “organic IT” technologies such as server virtualization, blade servers, data grids and computing grids and information lifecycle management, as well as service-oriented architectures and IP-based networks.

Carmi Levy, a senior research analyst with London, Ont.-based Info-Tech Research Group, said Forrester’s forecast is a high-level analysis in line with what he and other Canadian analysts are projecting.

Levy said security remains a popular area of investment for Canadian companies because it’s the one area they can’t afford to ignore or delay improving, adding that it functions almost independently from the state of the economy because it’s not a discretionary item.

“You can put off that migration to Vista by a year or so if you want because XP is still doing the job, but you cannot put off investing in additional security because you cannot afford to put the company at additional risk,” said Levy.

Forrester’s Bartels concluded his report by saying Canadians should be concerned that overall IT investment is growing more slowly in the U.S., warning that underestimating the importance of technology now could hurt Canada’s competitiveness with the U.S. over the long turn.

That view was rejected by Info-Tech’s Levy, who said just because a company spends more money on technology doesn’t mean it’s going to be more productive, or competitive. He noted that there are plenty of examples in every sector of companies using non-bleeding-edge technology competing quite effectively because they are otherwise mature in how they manage their businesses.

“Clearly, at some point, it becomes critical; if you don’t invest in IT infrastructure for 10 years, you’re going to lag significantly behind and won’t be able to compete, but if it’s a relatively minor difference in IT spend I don’t see it being critical,” said Levy. “There’s a lot more to business than just buying the latest and greatest technology.”

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