A report from the Conference Board of Canada (CBC) says the good news is that IT and communications industry (ITC) profits are expected to hit an all-time high since the tech bubble burst a few years ago. The bad news is that profits will become scarcer as competition pressures prices down.
That’s bad, of course, only if you’re an ITC vendor.
For those of on the buying side, it’s a positive forecast that the CBC describes in its Industry Outlook: Canada’s Information Technology and Communications Industry.
Released Nov. 4, the report portrays an up-down-then-steady path for Canada’s ITC sector over the next few years.
“The severe downturn in the industry appears to have come to an end,” said Louis Theriault, the CBC’s associate director, industrial outlook, in a statement. “But intense competition in all sectors of the industry, among a growing number of players, is driving prices downward. Profit margins, therefore, are lower than during the glory days of the late 1990s.”
The CBC, a not-for-profit research group funded by private industry and the government, says ITC profits will reach $4 billion this year, a big jump over the $2.7 billion the industry took home last year. The CBC points out that 2003 was the first year of profitability since the tech heydays that ended in 2001.
That year, the ITC industry lost $3 billion, according to the CBC report — a far cry from the $5 billion in profits the sector attracted in 1997.
The CBC says wireless companies, the fastest-growing industry sector, will increase their revenues by 20 per cent this year, thanks to high market penetration and technology that makes network operation more efficient than it was in the past.
Overall industry revenues are expected to climb 11.5 per cent as “increasing demand is offsetting falling prices,” reads a CBC statement.
Come 2005, however, revenue growth will tail off, and the ITC industry should pull in $3.1 billion in profits next year. “Although output will continue to increase, price decreases in the telecommunications and computer systems design services sectors will dampen revenue gains.”
The CBC expects profits to vary between $2.8 billion and $3.8 billion annually over the next few years, as international competition and new telecom service providers put further downward pressure on prices.
Of note is the growing voice-over-IP (VoIP) market. The CBC expects VoIP service providers to rake in nearly $4 billion in revenue this year, and $6 billion by 2008.
Mark Quigley, a telecom industry analyst at The Yankee Group Canada in Ottawa, said the CBC’s prediction that ITC profits would increase is probably right. However, he pointed out that the sector is still somewhat shakey. Nortel Networks, for instance, operates under a financial cloud these days.
“I wouldn’t say the picture is all sunshine and roses,” Quigley said.
The CBC says its ITC predictions comes from GDP forecasts and projected price changes in three sectors: computer and electronic product manufacturing; computer systems design and related services; and telecommunications services.
On Nov. 3, BCE Inc. announced that its Q3 2004 revenue went up 3.3 per cent over Q3 2003 to $4.8 billion, but thanks in part to restructuring charges — the cost of trimming more than 5,000 people from the payroll — operating income came down to $54 million from more than $1 billion in Q3 2003.
At Burnaby, B.C.-based Telus Corp., another communications service provider, Q3 2004 results, released late October, showed an eight per cent increase in operating revenue. Telus Mobility’s revenues grew 21 per cent compared to Q3 2003.
CIO survey: IT spending projections on the rise (Nov. 2, 2004)
IDC stands by its growth predictions for IT market(July 9, 2004)