Gartner sees spending on IT sector growing 16.6%

Indian enterprises spending on information communications and technology (ICT) in 2005 is expected to grow at more than twice the rate in the Asia Pacific region.

According to research and analyst firm Gartner, spending on ICT by Indian enterprises will rise 16.6 per cent to $22.8 billion in the next year compared with 7.6 per cent in the Asia Pacific region.

The next few years will present some of the greatest challenges and opportunities to CIO's and those responsible for IT planning and operations, a Gartner report said.

"For vendors the stakes couldn't be higher "" especially local vendors, who have long ignored the local market, cannot afford to miss this transition," said Sujay Chohan, VP & research director, Gartner India.

"The future is exciting and, in just five years, the IT industry will have little resemblance to that of today. There will be extraordinary benefits with network security, convergence, IP telephony, software as services, and instant messaging, all maturing within 36 months".

He added that utility computing and wireless LANs will also become more established while "we will begin to experience the value of RFID tags, grid computing, web conferencing and real-time infrastructure in the next three years."

Enterprise spending in the Asia Pacific (APAC) on hardware next year will rise 6.3 per cent to $36.9bn, with software increasing 12.4 per cent to $5.6bn while telecom will grow 7.5 per cent to $132.5bn and IT services will gain 8.4 per cent to $33.6bn.

In India, of the $22.88bn spend in 2005 on enterprise ICT, $3.34bn is the projected spend on hardware, an increase of 21.1 per cent over 2004; $0.52bn (16.4 per cent increase) on software; $16.7bn (15.5 per cent increase) on telecom and $2.32bn (18.3 per cent increase) on IT services.

According to Gartner, India will remain the highest growth market for telecommunications with around 35 million new subscribers in 2005, an 18 per cent increase from 2004, with the growth occurring in selected technologies mainly mobile. This accounts for almost one fourth of the new subscribers forecasted in Asia Pacific.

Consumer segment is rapidly gaining importance, driven by adoption of mobile services. This is reflected in their increased contribution towards spending for telecommunication services, from 35 per cent in 2002 to 43 per cent in 2005.

By 2008 the consumer segment will account for more than half of telecommunications spending, the report said. Gartner also said that open source and offshore IT services will continue to grow, while it warned global IT vendors to take emerging competition from China seriously with at least three Chinese IT companies becoming significant global competitors by 2010.

"With confidence growing in government circles about the capabilities of open source software, along with the increasing numbers of announcements about open source initiatives, we believe 60 per cent of large and mid-size government agencies in Asia Pacific will use open source software for applications in their core business processes by 2010. That compares with less than 15 per cent today," said Chohan.

According to Gartner, the hype of offshore IT services is real and reflects a dramatic uptake in global sourcing of these services. When compared with the total IT services market, less than 3 per cent of spending ($606 billion) is attributable to sourced services in 2004.

By 2007, the globally sourced component of IT services spending will be about $50 billion, or 7 per cent of the $728 billion total.

The growth in offshore BPO services outpaces the growth in global sourcing of IT services. Offshore component of global BPO services spend is expected to grow from $3 billion (2.4 per cent of total market spend of $124 billion in 2004) to $24 billion (15 per cent of the total market spend of $161 billion in 2007).

Gartner has also added that on a global level the PC vendor market will experience at least three lean years after 2005 with three of the top 10 vendors exiting the market by 2007.

"Unit growth will fall below the double-digit rates the market is accustomed to, and revenue growth will come to a standstill," said Chohan. "Price competition will intensify as vendors struggle to maintain growth in an austere market environment characterised by weak replacement activity and the growing importance of emerging markets."

Currently, the top 10 worldwide PC vendors, by unit shipment, are Dell, HP, IBM, Fujitsu, Fujitsu Siemens, Toshiba, NEC, Apple Computer, Lenovo Group and Gateway.

Of the top 10 worldwide vendors, only Dell has consistently been profitable in the past several years. Gartner said the PC divisions of HP and IBM are vulnerable to being spun off if their drag on margins and profitability is deemed too great by their parent companies.

Gartner has added that IT services will continue to grow in Asia Pacific, where mission-critical services are in high demand and micro-commerce will emerge as a major new business opportunity and there will be a fundamental change in the way software is built and used with the continuing development of web services.

"The changing business paradigm will force vendors and organisations alike to take tough decisions. Going forward in the short term there will be complexities arising from the transition, as organisations migrate keeping the 'old way' while simultaneously embracing whole new architectures, skills and technologies," said Chohan.