European IT market poised for significant slowdown in 2009

17 Nov 2008

In the wake of the worldwide financial crisis, the European IT market is set to slow to just 1.2pc year-on-year growth next year, an analyst has claimed.

According to IDC, the downturn in the world economy is affecting demand for IT in both mature and emerging markets across Europe, the Middle East and Africa (EMEA).

IT spending in western Europe will fall to just 1.2pc, reflecting a sharp decline in capital investment and a contraction in GDP.

Future Human

However, the regions of central and eastern Europe and the Middle East and Africa will continue to demonstrate relatively healthy growth rates.

“The IT market in western Europe has moved into a phase of very sluggish growth for the foreseeable future,” said Marcel Warmerdam, research director, European IT Markets, with responsibility for EMEA IT market research.

“Many IT users are already resetting priorities in view of tougher times, with many projects being postponed or cancelled.”

While EMEA’s emerging economies are also being affected by the crisis, they will be more resilient in the short term, and market growth will recover quicker, given demand fundamentals.

“While growth in the IT markets of central and eastern Europe and the Middle East and Africa regions will slow in 2009, affected by downturns in Russia, Turkey, and South Africa, we anticipate a sharp recovery already in 2010 in view of requirements for infrastructure development,” said Steven Frantzen, senior vice-president for EMEA research.

According to IDC, the IT markets in central and eastern Europe and Middle East and Africa will experience growth of 9.4pc and 8.5pc respectively in 2009.

In terms of technology sectors and demand, IDC expects discretionary spending on IT hardware to be the main focus of cutbacks in 2009. PC refresh cycles will be delayed, while new planned projects will be postponed or scaled back and, as business growth is projected downward, demand for storage and servers will be weak.

Sharply falling application service providers (ASPs) will also affect revenues. Growth of –2pc is expected here for next year, with positive growth only resuming in 2011. Similarly, the growth rate for expenditure on software has been almost halved to 4.1pc for 2009, reflecting IDC’s expectation that major business software upgrades will be delayed, particularly in the infrastructure space.

The IT services market will also feel the recession as demand for project-oriented services will be affected, and pressure may abound to renegotiate existing outsourcing contracts.

“We are likely to see a major shift in the type of IT spending as users increasingly focus on cost reduction and gaining efficiencies,” said Warmerdam. “In fact, despite the troublesome short-term picture, there are a few silver linings.”

These silver linings include double-digit growth in IP phones and smart phone handhelds, despite a general hardware slowdown; open source adoption by cost-conscious firms; the development of the software-as-a-service business model; growth in demand for outsourcing; and the use of green tech and virtualisation to improve data-centre efficiency.

Other silver linings include business continuity and IT security attracting investment, regardless of the economic climate, and the fact that the credit climate will bring on more regulation and compliancy efforts and the need for storage, software and data management investment.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years