Expect more IT vendors to expand their services businesses in anticipation of increasing proportion of IT budgets being channelled that way.
That is the main prediction of IDC's Western European Black Book, to be published this week. The book looks at the European IT market in its entirety, charting IT purchasing from 1996 to expected spend in 2002.
IDC expects the total IT spend in Europe to grow at approximately 9% per annum, slightly less than the growth rate in recent years, increasing from $216 billion (#132 billion) in 1998 to over #300 billion (#184 billion) in 2002. By that time the services will become nearly 42% of the average IT budget, compared to 37% in 1996.
Less of the corporate IT budget will be spent on single-user systems, leading analysts to question the future of the PC market as the major driver of the IT market. There will be increases in proportional spend on packaged software, IDC estimates. Servers and networking will hold their own.
This change in the expenditure profile is a short-term change driven by the need for Year 2000 and Euro transition. IDC believes this is driven by a change in the way we use IT, an increased acceptance of applications hosting, outsourcing and the service requirement of packaged applications like SAP.
Service revenues are growing while margins in software and particularly hardware are being eroded, according to IDC. Both hardware and software companies have spotted this change in the market and have moved to increase their market presence through acquisition.
IDC believes this is the motivation behind Compaq's takeover of Digital and Computer Associates' aborted takeover of Computer Sciences (CSC).
Other companies, like ICL and Unisys, are slowly dumping their manufacturing businesses to concentrate on services. IDC predicts that Dell will make a services acquisition this year.
The single-user market is now reaching a "mini-slump": the price of PCs is on a downward spiral and is under threat from the proliferation of smaller form factors as the dominant appliance to access the Internet.
For further information on the Western European Black Book call Philip Fersht, research manager at IDC's IT Market Centre, on 0181 987 7205.
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