Recovery will be sure but slow: research firm

IDC Canada Ltd.’s latest IT sector forecast pinpoints various factors – including infrastructure upgrades and Web services – that should shake the industry out of its current economic malaise. But those expecting IT gloom to quickly transition to boom will have to be patient, the Toronto-based firm’s analysts predicted earlier this month.

The report, The Future of the Canadian IT and Communications Market Forecasts 2003-07, offered a comprehensive five-year outlook of the overall IT sector (software, hardware, telecommunications and other IT services), predicting that the industry will witness a modest compounded annual growth rate (CAGR) of 2.5 per cent until 2007. This year, IDC Canada projected that IT spending will total $35 billion, with overall yearly spending expected to grow to about $40 billion by 2007.

According to Vito Mabrucco, group vice-president for IDC Canada, the sector has developed into a tighter “one-to-one” correlation with the Canadian gross domestic product – the IT market is profoundly affected by GDP growth, which has been relatively sluggish. “The maturity of the industry is a factor – it’s getting bigger so growth rates will decline,” Mabrucco said. “The market is still viable, but the sense right now is that businesses clearly are in a cutting-back mode.”

Mabrucco pointed to a focus on enterprise growth via market share while still maintaining profit levels.

Growth will come in the form of anticipated infrastructure replacement cycles, which will provide a relative boost to the software, services and hardware markets. The industry should brace itself for enterprise consolidation in the coming months, which should also affect IT spending, he added.

Despite a maturing market, there doesn’t appear to be any “killer app,” or solution on the horizon. “We welcome anybody who may know of any to let us know what those are,” Mabrucco said.

Alister Sutherland, IDC Canada’s director of software research, echoed that sentiment, noting that declining vendor pricing power, longer sales cycles and smaller, more focused deals will see the application software market experience only modest growth (CAGR from 2003 to 2007 of three per cent). The major drivers will be a combination of upgrade cycles, refocused sales efforts and Web services, Sutherland said. The major players continue to be SAP, PeopleSoft, Oracle, Siebel, J. D. Edwards and Microsoft. Expect vendors such as Microsoft to continue to target the mid-market, he added.

In his desktop PC forecast, hardware research analyst Eddie Chan noted that the concept of “good enough” computing pervades a maturing IT sector. The top vendors in this space include HP, Dell and IBM. In 2002 , desktops accounted for 78 per cent of total PC shipments and 68 per cent of total PC spending; by 2007 desktops will account for 75 per cent of shipments and 60 per cent of spending.

The enterprise’s relationship with desktops is evolving, Chan said, adding that mobile computing is proving to be a big inhibitor. Notebook sales are on the rise – Chan noted that notebook sales should climb steadily through to 2007, inhibited only by security concerns (wireless and asset) and the price premium over desktops.

On the server side, analyst Alan Freedman said the dominant vendors continue to be IBM, Dell, HP and Sun – accounting for 95 per cent of server revenue. Volume servers continue to dominate, particularly as server capabilities and functionality move downstream. From 2003 to 2007, he expects the SMB space to expand about seven per cent (CAGR), the mid-market at around four per cent, while the larger enterprise will experience negative growth (minus-seven per cent).

A “will-suffice” computing purchasing mentality persists, Freedman noted, particularly as affordable alternative technologies such as Linux, IA-64 and blade servers proliferate within the sector. Storage management software is also a priority, Freedman said, forcing vendors to collaborate in order to provide interoperable solutions.

IT is seeing a “new reality” – it can no longer expect to experience double-digit growth, Mabrucco said.