IDC sees growth in local IT

Outsourcing to generate lion's share

The New Zealand IT services market generated $2.1 billion last year, will grow to $2.25 billion this year and will be worth nearly $3 billion by 2009, IDC market analyst Jane McPherson says.

Revenue in 2004 represented a 9.4% increase over the year before, but a significant part of that growth came from the $580 million Fonterra outsourcing contract, signed at the end of 2003, McPherson says.

"The Fonterra deal has been split out over five years from 2004," McPherson says.

While outsourcing is predicted to generate the lion's share of revenue in the services sector, there will also be steady growth in consulting and systems integration, she says. However, IDC expects little growth in training and maintenance, which are mature markets.

Outsourcing is predicted to grab 31.6% of the services market and systems integration will make up 22.5% this year, IDC predicts.

The ASP sector is forecast to grow 30% between now and 2009, making it the fastest growing segment of the services sector, although McPherson cautions the growth figure is high because it's coming off a small base. Even by 2009 it will account for only 0.9% of the whole services sector.

ASPs are a form of utility computing, she says, and end users may have negative perceptions of the ASP model, "because it's been done badly before".

However, newer offerings by the likes of Gen-i will see the market grow, she says.

Operations activities will be the key revenue earner, with takings from that area increasing from $674 million in 2004 to $928 million in 2009.

Revenue from implementation and planning will each grow 7.1% between now and 2009, she says.

The main users of IT services will remain the government and banking sectors.

The services sector of the economy will itself also be a major user of IT services, she says. The biggest increase in use of IT services will come from the communications and media sectors, which are predicted to increase their use of IT services by 7.2% between now and 2009.

The survey was conducted by polling the top 50 IT services providers in New Zealand and getting their revenue figures, split into the outsourcing, consulting and other categories listed above.

The perception of the health of the local IT market is also up, with 32% of respondents to IDC's survey saying they expected IT budgets for 2005 to be bigger than for last year, 60% predicting them to be the same and less than 10% foreseeing lower budgets.

The figures are an advance on last year, when there were more preditions of lower budgets, McPherson says.

The overall growth in the services sector from $2.1 billion last year to $2.9 billion by 2009 represents a CAGR (compound annual growth rate) of 6.5%.

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