Irish IT survey points to changing market trends

3 Sep 2003

Many Irish businesses will spend less on IT in 2003 than they did in 2002 despite experiencing turnover growth, a new report has found. Historically the amount a company spends on IT rises in line with its turnover but IDC’s IT Trends & Expenditure 2003 report, published this week, finds this link to have been broken. “We don’t know if the break is permanent or just temporary but it does seem that the link between basic health of a company and IT expenditure has gone,” says John Gilsenan (pictured), IDC consultant and author of the study.

Many of the companies surveyed, particularly larger ones, expected their IT spending in 2003 to be as low or lower than 2002, which is generally recognised as the worst year ever for the IT industry. On a brighter note, IDC expects the market to grow by over 5pc in 2004, so long as the global economic recovery continues.

The report, the most comprehensive of its type on the Irish market, was based on data from IDC’s annual survey of 327 IT procurement decision makers in public and private sector organisations. It covers their views and attitudes to IT, as well as IT spending intentions.

Another major finding of the survey is that Irish organisations are spending more on IT services of all types, from simple hardware maintenance and helpdesk support to advanced business process outsourcing (BPO). Two services in particular have grown considerably: business continuity/disaster recovery and security services. A total of 35pc of organisations claims to use each of these types of service. BPO is also growing in popularity. At the top end, 28pc of companies with more than 500 employees are current users of BPO services, such as payroll outsourcing, and a further 7pc intend to buy in these services by the of the year.

The report suggests that the rise in spending on IT services may reflect organisations’ desire to get better value for money from their IT investments. “In a downturn the easiest thing to do is cut external expenditure with vendors while keeping internal expenditure on staff and facilities at similar levels,” says Gilsenan. “But end users seem to be realising that external services can be used to cut costs overall. The move to services is particularly significant when it happens during a downturn in the economy.

“It also comes at a good time for many Irish IT suppliers who have pushed the services message in the past with limited success. The opportunity is there now for them to succeed and it appears they are already doing so, though it is also pretty certain that there is massive competition for the best contracts.”

Gilsenan also believes that the spending profile of Irish organisations may come to resemble that of their counterparts in more mature European markets like Germany, the UK and France where expenditure tends to be split more evenly between hardware, software and services. In Ireland, conversely, hardware has traditionally accounted for about half of expenditure with software and services coming in at about 25pc each.

The survey finds that the move to services is most pronounced among large organisations and small ones, with medium-sized ones most resistant to change. This is significant because large and small organisations between them account for a very high percentage of IT spending in Ireland. So if, for example, large organisations do increase their services spend from 18pc of the total to 22pc, as they say to plan to, this will add many millions of euro to the IT services market in Ireland this year, the report concludes.

On the hardware side, there were few crumbs of comfort for IT vendors. However, one piece of good news is the finding that 15pc of all organisations plan to do a major PC upgrade during 2003 and a further 22pc plan to do so in 2004. This includes 22pc of the very largest organisations in Ireland so this should ensure a healthier PC market than of late. At the same time, hardware prices continue to tumble, putting vendor margins under pressure.

In the software market, the survey confirmed the waning demand for customer relationship management technology – only 13pc of organisations say they plan to implement CRM systems as compared with approximately 25pc in the previous year’s survey. More surprisingly, Linux is not being as widely deployed as expected. Although 15pc of large organisations have one or more servers running Linux, this falls to 4pc for all organisations. Windows, on the other hand, continues to be dominant on the desktop and is gaining ground in the server area too. “There are some domains that we wouldn’t have expected to see Windows even a couple of years ago. It is competing well even in the mid-sector against Unix boxes. You wouldn’t bet against it targeting the top end at some stage,” comments Gilsenan.

A surprising finding was 6pc of organisations named Eircom as their ‘primary supplier of IT services’. The telco was ranked fourth behind computer heavyweights Dell (12pc), HP/Compaq (9pc) and Microsoft (7.7pc) and ahead of IBM (4pc). Gilsenan believes that the high ranking may reflect Eircom’s success in the areas of managed services and broadband data services.

The report also provides some interesting data on recruitment trends. Compared with last year’s survey, marginally more organisations are finding it very easy or easy to attract and retain IT personnel – 60pc compared with 55pc – but there is no evidence of the huge glut of skills that some commentators have been predicting. Larger companies are finding it easiest to recruit, with almost half finding it very easy to find and retain the right IT staff.

In summary, the Irish IT market – valued at just over $2bn – will decline very slightly this year, by 0.3pc, before picking up next year as global economic growth returns. Growth in 2004 will reach 5.3pc with IT services and software driving the market forward. Hardware systems will continue to show negative growth until 2005 when 3.6pc growth is expected.

By Brian Skelly