Gartner halves IT services growth prediction

Gartner has halved its growth forecasts for the New Zealand IT services market. The research firm last year predicted the market would more than double in size by 2005. But after a continued IT slowdown Gartner now expects the market to grow by 50%.

Gartner has halved its growth forecasts for the New Zealand IT services market.

The research firm last year predicted the market would more than double in size by 2005. But after a continued IT slowdown, worsened by the “screeching halt” of September 11, Gartner now expects the market to grow by 50% from $US852 million ($1.8 billion) last year to $US1234 million ($2.6 billion) by 2003. However, this is still equivalent to compound growth of 8.9% a year.

Gartner’s figures are now also more in line with those of rival analyst IDC since the company changed its definition of IT services, removing the outsourcing of many business processes from the statistics. Both groups now show similar sizes for the IT services market in New Zealand, at about $2 billion in 2001, though IDC expects slower annual growth of 6.4% until 2005. IDC analyst Mark Cribbens says all forecasters have been scaling down growth projections.

Last year Gartner expected the Kiwi IT services market to top $6.5 billion in 2005, but under the new definitions and slower growth model (and a rising New Zealand dollar) its $2.6 billion figure is closer to IDC’s 2005 projection of $2.46 billion.

Gartner New Zealand analyst Michele Caminos says 2001 looked like it would be a good year with strong movements towards e-business, supply chain management and application development. But rather than implementing wholesale projects businesses are increasingly focusing on measures designed to obtain efficiencies, cost containment and improved return on investment.

“Full blown” six-figure projects have been “modularised” to many smaller five-figure projects with a two- or three-month payback period, she says, and if a project cannot prove itself in its proposal stage it is not implemented. While the cost cutting drive is helping outsourcing, fewer projects means the consultancy market is having to put up with relatively slow growth of 3.2%, Caminos says.

“Inflexible contracts and long-term projects no longer exist. End users want shorter milestones and investments that do not tie up capital for longer periods. They need enhanced security and network integration and want to leverage the advantages of the latest telecommunications infrastructure and e-business from e-procurement front-ends to CRM,” Gartner says, in a summary of its latest services market report.

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