Canadian IT spending remains in single-digit growth: IDC

Canadian IT spending will remain in the three to five per cent range in 2006, with multi-core processors, virtualization and wireless technology driving growth, IDC Canada predicted Thursday.

In its annual forecast of technology trends, the research firm said the Canadian information communications and technology (ICT) market will reach $74 billion this year, and approximately $80 billion by 2008. The industry employs about one million people, or seven per cent of the total workforce, IDC said, who contribute $30 billion in taxes.

While the growth is far below the double digits that were commonplace less than 10 years ago, IDC country manager Vito Mabrucco said a slowing interest rate, a stronger economy and healthy balance sheet in corporate enterprises will bring continued opportunity to vendors and their customers.  

“Notwithstanding the fun and games and name-calling as we prepare for the election – if I can still use the word ‘notwithstanding’ — it is a stable business and political environment,” Mabrucco said. “While consumers will contribute to growth, the main contributions are coming from business investment.”

IDC predicted the introduction of multi-core processors from firms such as Intel and AMD would have IT managers rethinking their infrastructure procurement strategies. This in turn would result in a rationalization of servers, lowering purchasing and administration costs while creating systems that run at a lower frequency and consuming less power. “Licensing issues may damper user enthusiasm,” Mabrucco admitted. “Should the pricing be based on utilization, per CPU or on a core basis? What about grid computing environments? All these will need to be worked out.”

Virtualization software that allows applications to sit side by side but isolated on the same server, meanwhile, is breaking the link between the common requirement that hardware runs on a dedicated server, and the results are often dramatic, Mabrucco said. This will lead to greater return on investment and resource utilization, according to IDC. Multiple workloads will also move from one system to another, offering greater automation and lower management costs, Mabrucco said.

The rise of on-demand computing means IDC Canada will also begin to start tracking subscription revenues for software-as-a-service offerings from companies such as Netsuite and Salesforce.com, Mabrucco said. “Canada will see strong adoption of hosted sales force automation and CRM,” he said. “It’s becoming applicable as enterprise applications develop into more role-based suites.”

Vendors will continue to struggle to find the right sales coverage model for IT products, Mabrucco warned. In some cases they may take a national approach, a regional approach or one that is based on verticals. The problem is compounded by Canada’s breadth and its pockets of IT penetration.

“The west is two-thirds the size of Ontario.  It’s under-penetrated from an IT to GDP metric,” he said. “If you put Quebec and the Atlantic (provinces) together, it’s almost the same size as the west . . . figuring this out will be difficult as margins are tighter and competition becomes more aggressive.”

From a vertical market perspective, IDC said financial services make up about 19 per cent of IT spending, as organizations focus on expense control, cost reduction and storage/server consolidation issues. Government and health-care, meanwhile, is slated to make up 22 per cent.

With a focus on case management, performance management and a shift away from electronic service delivery to service key pain points. Governments will look more closely at managed security in 2006, Mabrucco said, as well as more public private partnerships to achieve its goals. “Poor IT-business alignment will continue to hamper adoption in Canadian hospitals,” he added. 

Communications and media spending is to make up 12 per cent of the market and manufacturing 15 per cent.

Mabrucco dubbed wireless the darling of the telecom market segment, surpassing local services to $11.2 billion. “We have reached the tipping point, but there’s still a lot more room,” he said. IDC calculated a base of more than 16 million wireless users, or 50 per cent penetration. Non-voice services such as SMS and MSS are expected to drive growth here, according to IDC, and break through the $1 billion revenue barrier.

While Canada’s IT spending may be relatively healthy, Mabrucco said it is still only 6.8 per cent of U.S. levels, and as a percentage of GDP is only 2.6 per cent vs. 3.4 in the U.S.

“There are structural reasons for the gap, but there is also an attitudinal issue around business practices,” he said, urging the industry to turn Canada into a “disruptive innovation nation.” 

IDC Canada is also closely following the impact of globalization and sees the rise of India, China and other markets as providing “a new raw material of knowledge,” Mabrucco said, which may force Canada to revisit its immigration policies.

Comment: info@itbusiness.ca

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