Software and computing services will continue to grow faster than the rest of the economy.
That is the prediction of the 12th annual edition of the Holway Report, out this week. Analyst Richard Holway says companies with a strong market focus, such as outsourcers Capita and FI Group and accountancy software suppliers like Sage, "should continue to thrive."
However, IT staff agencies and companies dealing in commodities such as hardware or third party software "are likely to have a particularly bad time," he warns. When the software and computing services sector passes the Year 2000 spike, growth rates for the staffing sector will plunge to around five per cent compared to 29 per cent in 1998.
Overall, revenue growth in the industry will ease slightly in 1999, to 21 per cent from 24 per cent last year, levelling out at its historic norm of 12 per cent next year.
The UK software and services market, "has even better growth prospects than Europe or the US," the report says. Growth will come from spend on Internet and ecommerce related developments and services replacing Year 2000 and euro spend next year.
UK companies such as Misys, Sage, Logica, RM and London Bridge have proven they can compete internationally in their chosen markets.
What the UK is lacking, Holway says, is a world sized software and services company such as EDS, IBM Global Services or Cap Gemini - although preliminary findings from this year's report show that the UK subsidiaries of each of these companies did extremely well.
IBM Global Services in the UK was, again, Holway says, the best performer in IBM worldwide, and Cap Gemini saw 54 per cent UK growth, boosting UK revenues to nearly £600 million.
Holway says that share price growth peaked in 1997/1998 and stands at just 17 per cent since mid April last year. Share price growth will level off and price/earnings ratios will return to more sustainable levels.
As a result, stock market flotations which were put off in the third quarter of last year due to market volatility, may be back on course.
For more stories see this week's issue of Computing
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