The market for hardware support services is largely stagnant due to vendors trying to compete on price, which translates into poor service quality and a reluctance on the part of customers to renew contracts.
The sector is also being slowed by user demand for same day support, but an unwillingness to pay the extra costs associated with such a service. And the situation is being made worse by the limited availability of multivendor services parts, which makes it difficult for suppliers offering multivendor support to deliver on the promise.
As a result, the worldwide market is likely to grow to at an annual compound rate of only 5.6 per cent to $118.93 billion in 2003 from $90.77 in 1998, according to Eric Rocco, principal industry analyst and research director for Dataquest's hardware services at the market research firm's Servicetrends 99 conference in San Francisco this week.
"This is a huge market with lots of margin, and the pressure is less than most other professional services sectors, but revenues and growth are slower. In the face of this pressure, the market, which is currently very fragmented, is consolidating into major players with key core competencies such as onsite maintenance or logistics," he said.
"As a result, many vendors are competingon price and that translates into lower quality because there's no other way. People also want same day support, but they're not necessarily prepared to pay for it, while products are also getting more reliable so customers think they can go without and just get longer warranties," he added.
On the upside, however, Windows NT and email systems are driving demand for mission critical hardware support services and the overall sector is likely to be boosted further by increasing demand for life cycle/managed services, where hardware typically makes up a large part of the deal.
This is reflected in an as yet unpublished Dataquest survey of 211 organisations that was undertaken in April, which indicated that 43 per cent of users expected to increase their spending on hardware services from external providers between 1999 and 2001 by an average of 22 per cent.
Some 60 per cent of these respondents said they would spend more on hardware services as a result purchasing new hardware, 10.4 per cent said they expected their IT budget to increase, while 7.8 per cent predicted they would be involved in more outsourcing.
Only seven per cent said they expected to cut their expenditure, while 50 per cent expected it to stay the same.
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