Much of IT industry 'still in denial'

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Much of IT industry 'still in denial'

Julia Vowler
Noel Coward, in his parody of British good cheer, once trilled, "There are bad times just around the corner". As far as the UK's corporate IT is concerned that corner has already been turned.

The latest crop of analysts' forecasts, published at the end of September, accentuate the negative even in their titles. "Growth, what growth?" is Ovum's downbeat query, and Merrill Lynch's European CIOsurvey of the spending experiences and expectations of 300 European chief information officers is subtitled a disheartening, "Not Even a Glimmer of Hope".

Money for IT is tight, and getting tighter: 24% of respondents to the Merrill Lynch survey believe that spend in 2002 will be less than budget; 52% said that IT budgets would be flat in 2003; only 33% said IT budgets would be up; while 14% said they would be down next year.

The finance sector is still feeling hardest hit, with 29% of respondents in that sector saying that their IT budgets would be down next year, and 36% saying they would be flat. "The most optimistic of the sectors is services, where 61% of respondents believed IT budgets would be up in 2003 and none believed they would be down," finds the Merrill Lynch survey.

Across Europe, the sober northern Europeans are most cautious: only 30% of UK respondents thought 2003 budgets would be up, compared with 37% of French respondents and 44% of Italians. Germans were the most gloomy - only 26% thought budgets would be up next year.

Ovum is also chary of false optimism. "Talk of a rebound in the European IT market in 2003 is misleading," says its latest report.

"Ever since the downturn began it seems that the recovery has always been two quarters away," says Julian Hewitt, Ovum's chief analyst.

"It seems that the industry is still in denial. At Ovum we are revising our estimates for the European software market downwards. We now expect that market growth will decline about 4% in 2002 and be flat at best in 2003."

This forecast is reflected in the findings of the forthcoming Ovum Holway report on the UK software and services market, which "will show flat revenues for 2002 and for 2003", according to Hewitt.

"When excluding outsourcing, revenues are 4.5% down in 2002," he said.

The fundamental characteristic of what IT spending there is, says Hewitt, is that it does not represent overall growth in spending. "Market size is levelling," he says. "Companies that are spending their 5% of turnover on IT are saying 'that's enough' - they want to see return on investment of that spend."

He said that whereas in the good times it was OK to take a few gambles and to try out new technology, in the tough times it is all about squeezing more from what you already have. "Anything new will have to displace something old - there will be no real increase in user spending," Hewitt warns.

This is what accounts for the growth in outsourcing identified in the forthcoming Ovum Holway report, he says. This growth does not represent new IT spend but a shift from internal to external spend.

At Gartner, chief European analyst Peter Sondergaard, sees the same pattern. He says there will be a gap until mid-2003, during which time users will accept that their IT infrastructures are largely in place, and so focus on cost control by consolidating and integrating systems, and optimising their use of existing systems. Outsourcing will be attractive, and the only sign of market growth.

From mid-2003, however, Gartner is cautiously optimistic. It sees increased effort on IT that will help to close the gap between business and IT. Gartner's "green shoots" include business intelligence, knowledge management, application integration and Web services.

Optimism shades into caution thereafter, however. Their dating for the next IT boom is not only unscheduled, but the boom itself, says Sondergaard, will be not a single concentrated boom, but multiple smaller booms, driven by specific business process issues, or vertical industry sector issues such as the take up of wireless technology in the retail sector.
Related Topics: IT outsourcing, VIEW ALL TOPICS

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