Slight rise forecast for Irish technology spending

12 Jul 2005

Technology spending in Ireland will show a slight rise to just over €2.2bn for this year, an estimated increase of 3pc, according to new figures from the research firm iReach.

Following a mid-year review of its initial estimates for 2005, the company said that Irish organisations’ continued focus on costs means that IT purchasing will not increase by much during this year. A large part of the spending is set to take place in the fourth quarter of the year, iReach added.

Spending on hardware, including support and maintenance, will account for half of the total Irish IT spend. Software will account for €370m of the outlay and the remaining €770m will go towards IT services. This buoyancy in hardware purchases is out of kilter with some other European markets, said Oisin Byrne, managing director of iReach. He noted that a combination of falling hardware costs and a maturing market should mean that spending in this area is likely to flatten out in the near future.

Service spending is forecast to remain flat over the course of this year compared to 2004. The revenues break down as follows: consulting and advisory services have been estimated at €170m (down from €180m); application development and system integration have been estimated at €200m (down from €220m).

This year, growth in IT services will come from outsourcing, especially in areas of managed services and application management outsourcing. The category of outsourcing including managed services, is estimated at €400m – an increase of 9pc from €370m.

According to Byrne, there is still some resistance to outsourcing in Ireland. “If you take the Bank of Ireland-HP [Hewlett-Packard] numbers out it would be a surprisingly small market,” he commented, referring to the companies’ €600m seven-year outsourcing contract signed two years ago.

There are several reasons for this resistance, he suggested. “Outsourcing is a scale type of operation; the larger the operation, the greater the opportunity for cost benefits,” said Byrne. However, the nature of the Irish market is such that there is a small number of large companies and a large number of small ones.

In addition, suppliers tend to bracket several different services under the banner of outsourcing, which confuses customers. “Every vendor in the marketplace calls their offering outsourcing, from disaster recovery to managed services. Confusion is never a good bedfellow of change,” said Byrne.

“Some vendors may have to take responsibility for overselling the cost benefit,” he added. “They should maybe refocus on the business value and competitive advantage to be gained from technology. IT buyers [in Ireland] probably have to work harder for budgets; IT is a tool of competitive advantage and it probably doesn’t suit them to have suppliers sell to them on costs.”

By Gordon Smith