Six months after its last IT sector forecast, IDC Canada Ltd. has amended its outlook from a possible “”mild recovery”” to “”it’s underway.””

The Toronto-based research firm has revised predicted growth rates slightly, particularly in the hardware

market. According to IDC, PC volumes are up in the three to five per cent range, entry-level servers are up four to six per cent and storage units up six per cent in 2004. The replacement market is driving the change, and pulling up software sales as a corollary.

Within software, the markets that demonstrate the most growth are security, integration, and management software to deal with more investments in servers and storage.

IDC Canada has marginally changed its longer outlook for 2003-2008 from an overall IT sector growth of 2.4 per cent compound annual growth rate in January to 2.7 per cent.

“”We talked in January about an industry that was desperately seeking growth — a market comprised of a community really waiting for the return to growth. We are delighted to say to you today that the waiting is over. It may not be huge, but the growth appears to be solid,”” said Denis Vance, IDC Canada’s group vice-president of products and services research, who presented the results Wednesday via teleconference.

“”It may not be the double-digit growth that we sometimes dream about, but it is quite clear that the market bottomed out in 2003 and has returned to growth in 2004.””

The services sector is the largest contributing factor to the slightly more optimistic outlook in IT, he said. In both the public and private sectors, services spending represents 51 per cent of overall IT spend, according to IDC numbers. Of that, outsourcing is the largest single sector of the services market.

“”We think it reflects the maturity of our industry and it will affect many of the ways in which we conduct our business,”” said Vance.

He said that outsourcing is now viewed not only as a means to offload portions of business operations that are not part of a core competency, but as a means to effect a broader business transformation. He said that one-third of Canadian companies are looking to redesign their business processes.

There are opportunities for outsourcing services in business intelligence, he said, particularly in infrastructure, the public sector and the finance sector.

For some vendors, however, positive growth in IT may not yield similar results in profit margins, and there is continual pressure to keep prices low.

“”We think this pricing pressure is coming as a result of the prevailing competitive environment, user expectations — which have been set over a few lean years — as well as by the influence of offshore firms selling in Canada,”” said Vance.

Hot-button technologies like RFID may still be more about the buzzword than about the business.

Wal-Mart is driving the technology by pushing its suppliers towards its adoption, but wider acceptance is still “”a couple of years away,”” according to IDC Canada’s telecommunications analyst Lawrence Surtees.

“”It was Wal-Mart 20 years ago that made the barcode ubiquitous. But in the short term there’s a hill that needs to be conquered, which is to cut the price of an RFID tag down below not just a buck but probably a nickel,”” said Surtees. He added that RFID still comes with “”a mass of privacy implications.””

In its January address, IDC Canada proclaimed Linux as the technology that had truly made its mark and was beginning to erode Windows market share. Vance said that Linux is “”indeed prime time,”” but is more likely to be cutting into the Unix market. “”We are no longer predicting any measurable slip in Windows share.””

Open source overall is growing more slowly than predicted due to customer reticence over risk management and support issues, he said.

The vendors that are most likely to emerge from the IT downturn in healthy shape are those that move from protecting market share to growing it, said Vance, adding a formula for success is more functionality, less complexity and more customer focus.

Comment: info@itbusiness.ca

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