Analysts disagree on extent of ICT slowdown

IDC Canada, Forrester Research, the Organisation for Economic Co-operation and Development (OECD), and Enterprise Management Associates (EMA) may disagree on the extent of the information and communication technology (ICT) slowdown, but all concur that hardware and semiconductors are getting hit hardest. For example, IDC believes that ICT vendors will see more than $350 million new annual capital spending in 2009 - 2010, whereas Forrester predicts Canadian ICT spending will be flat or down marginally. Although less optimistic than IDC, Forrester still puts Canada in better shape relative to the global economy, which is expected to see 3% drop in tech spending in 2009. In US dollar terms this represents a projected worldwide decline of $1.66 billion. Meanwhile, the OECD says that the global IT industry will see flat or declining growth in 2009. "The hardware side is being hit the most," says Graham Vickery, head of the information economy group at the OECD, in conversation with Network Letter from his office in Paris, France. Vickery says that services will hold up better, a view that is confirmed by Vito Mabrucco, managing director of IDC Canada. However, the storm clouds have gathered over the entire ICT market, and the forecasts have cooled very quickly. "Our downside for networking is now at -1% growth in 2009," Mabrucco tells Network Letter. "This is compared to our September forecast of 7% growth. This is a dramatic change - from one of the fastest growing markets to one of the worst." Overall, the view for telecom hardware and services is not as negative as in other areas. "There is some core infrastructure build-out and 4G overlay with Rogers competing with Bell," says Mabrucco. "The network infrastructure equipment market is as healthy as it was in 2008-2009." All forecasters see traditional PC sales as softening, with dire consequences for chip manufacturers. In its forecast, IDC believes that SMB IT budgets will see increases in software and services mix, but that hardware saturation will result in a 2.9% decline in PC spending. Forrester concurs, but its pessimism extends to all areas. The following list indicates Forrester's estimated decline by percent in 2009 for Canadian ICT segments: computers and peripherals, -3.6%; communications equipment, -1.1%; software, 1.3%; IT services and outsourcing, -0.2%. In total, this averages to a -1.3% decline. However, Canada's weaker dollar should help stimulate the economy. "Many of the forecasts that are out there - the OECD, the Economist poll - show Canada as doing a bit better in 2009 in terms of real GDP because of the weaker dollar," says Andrew Bartels, VP and principal analyst with Forrester Research. "You could make the case that Canada will do slightly better than the US in economic terms," he adds. "But Canada's ICT spending will be flat or down as a percent because ICT investment is not an inherent priority. As well, the public sector in Canada is a bigger part of the market, and it moves in its own cycles." The public sector might be a wise bet for ICT spending in a stimulus-driven recovery, but what other areas could see investment? Dan Twing, chief operations officer with Enterprise Management Associates (EMA), an industry analyst and consulting firm, says that ongoing trends in IT service management linking data to business will favour some verticals over others. "Some of these trends are pretty massive," he says. "We are seeing it in retail, in government, and in insurance, although banking has fallen." IDC's Mabrucco has a slightly different view of the Canadian ICT market. "Financial services will continue to be the big spender," he says. "Banks may slow, but they will not take the year off from investing in IT, like they did in 2001. Manufacturing is where you might see 50% declines. The gas industry will not be as free with its spending. And in the public sector we are not like the US where cities and states are going bankrupt." Twing suggets outsourcing might make more sense during a slowdown, and could actually result in some robust ICT spending. "Outsourcing will not suffer," he says. "It can save a company 10% to 15% in ICT spend. The companies that will benefit from this are the likes of Hewlett-Packard, IBM Global Services, HCL, Wipro Technologies, Tata, and Capgemini." However, the fact that services are holding up isn't much consolation to chip producers like Intel Corp. and Advanced Micro Devices Inc. (AMD), which are heavily dependent on the PC market. "Services will hold up better, but the semiconductor equipment companies are doing very badly," says the OECD's Vickery, adding that the OECD believes that the semiconductor industry will fall nearly 6% in 2009.

Analysts disagree on extent of ICT slowdown

News | 01/27/2009 6:45 pm EST

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