IDC Canada predicts 4.3 per cent growth in IT spending

Demand by Canadian executives for productivity improvements in their businesses will drive a 4.3 per cent increase in spending on IT infrastructure, applications and employee training this year, market research firm IDC Canada predicted


The findings are a result of a survey of 100 C-level executives selected from the Financial Post’s group of 800 companies, which was conducted between Nov. and Dec. last year. While productivity has been a “”hot issue”” among this group for the last three years, it is a much more dominant theme in 2005, said IDC Canada chief research officer Denis Vance.

IDC based this prediction on three main responses from the survey. For example, executives’ primary concern with IT has shifted away from reliability and uptime to IT’s ability to change and adapt in a timely manner, Vance said. Whereas 28 per cent of respondents cited reliability and uptime as their main concern the year before, only 17 per cent said the same in 2004. Conversely, the percentage of respondents who voiced concerns about the ability of IT to adapt or change jumped from 15 to 34 per cent, said Vance.

Secondly, IT vendors can improve return on investment by helping employees understand how to use IT solutions, according to respondents. Finally, 67 per cent of executives surveyed believed that IT is a significant source of competitive advantage over other companies or is a steady contributor to ongoing operational capabilities.

“”We believe that represents strong case for productivity,”” said Vance.

2004 finishes ahead of initial predictions

Recapping last year’s predictions, Vance said 2004 marked the IT market’s return to growth in Canada. IDC estimates that 2004 will go into the books at 4 per cent — over one per cent higher than it had originally forecast last year at this time.

In 2005, Vance said the IT market will grow 4.3 per cent year over year with a compound annual growth rate of 3.5 per cent from 2004 to 2008. Leading the charge will be hardware at a year over year growth rate of 5.5 per cent in terms of number of units shipped and revenue, said Vance. Growth in this area will be largely fueled by desktop replacement cycles.

“”There’s still some pent-up demand out there,”” said Vance, adding that survey respondents are confident in the Canadian economy despite the Bank of Canada’s David Dodge decision earlier this week not to increase interest rates. Potential drawbacks to increased spending include a strong Canadian dollar and unforeseeable events such as BSE and SARS, which plagued the market in 2003.

Growth in the server and storage space will be driven by the increasing demand for blade servers, which IDC predicts will represent 20 per cent of the market in 2008, and more attention being paid to regulatory compliance statutes such as PIPEDA and Sarbanes-Oxley in the U.S.

The software market will experience 3.3 per cent growth in 2005 as new platforms emerge in a transitional market, said Vance. Speaking of transitions, Vance said with continued market consolidation such as Oracle’s acquisition of PeopleSoft the vendor community needs to provide more value to clients. “”Shrinking margins, technical parity among vendors and growing interest in open source is driving vendors to deeper partnership with each other.””

Overall, services like IT consulting and integration continue to be the biggest segment of the Canadian IT landscape, accounting for $17 billion in 2005. Services will grow 3.7 per cent year over year with a compound annual growth rate of 4.1 per cent between 2004 and 2008. “”The focus will be on customized training as opposed to using in-house resources,”” said Vance.

A $38 billion market

IDC forecasts the Canadian IT market will grow to be 38 billion-dollar business in 2005, said Vance, adding the telco sector will exceed that number. Whereas traditional elements of the telecom business are in decline, Vance said growth is being driven by data, Internet and wireless, which IDC predicts will grow to $10 billion in 2005.

Off-shoring misses the boat

Services revenue generated from the off-shoring market were approximately $197 million last year, IDC reported. Vance, however, said that doesn’t mean that off-shoring is not a factor in the Canadian market as the bulk of off-shoring business is comprised of Canadian firms that choose to fulfill their client’s contracts in off-shore locations. Vance warned though that this market could be endangered if the Canadian dollar goes over the 85-cents mark.

Small business is big business

Vendors have discovered have devoted their attention to the SMB market as means of driving growth, said Vance. That trend will continue into 2005 as IDC predicts that SMBs will account for 27 per cent of total IT spend in the market, equivalent to $10 billion. “”It represents a way for all of the players in the market to expand their addressable market space,”” said Vance.

“”So much sizzle and so little steak“”

Lastly, Vance said the IT market was inundated with predictions about Radio Frequency Identification technology but saw few dollars being spent. Vance, however, added that this is not surprising given that Canada trails the U.S. by 12 to 18 months.

He said Canada lacks mandates such as the one from Wal-Mart in the U.S. that would drive wide-spread adoption. IDC predicts that a mandate will be given in late 2005 from a major Canadian retailer, which Vance declined to speculate on.

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