Services choice faces shrinkage - analysts

IT analyst company Gartner Asia-Pacific is warning of consolidation in the IT services market with companies such as EDS, Unisys and Fujitsu as possible takeover targets.

In a series of regional forecasts focusing on the hottest topics for 2003, Gartner says a shake-out is inevitable, with a number of the current major players expected to merge in the IT services, hardware - particularly storage - and tele-communications markets.

Australia-based Gartner research chief Bob Hayward says vendor consolidation will not only continue but accelerate. "For most medium[-sized] to large enterprises, at least one strategic vendor partner will cease to exist in its present form by the end of 2003.

These changes are by no means occurring among the smaller vendors only. Many of the largest and best-known names will be among those transforming or disappearing in 2003, and this turbulence is a global phenomenon," Hayward says.

"Last year who would have thought that Compaq and HP would get together or IBM and PricewaterhouseCoopers."

Hayward says giant services companies such as EDS, Unisys and Fujitsu may be doing reasonably well in Australia and New Zealand but globally are going through tough times. Meanwhile, he wouldn't be surprised to see a cash-rich company such as Microsoft or Cisco buy a services company this year because they are "reasonably weak" in services.

"If you look at any mature, global industry there are only two or three main competitors that are viable and yet in the IT industry there are still dozens and dozens of players. There are just too many."

IDC New Zealand analyst Mark Cribbens agrees with the general notion that the number of IT services companies will shrink.

He says there are still too many players and that competitiveness will increase as large vendors look to move into services because of declining margins in hardware. "They're turning into total solutions providers."

IBM has already done this, HP has huge untapped potential and Novell is trying to move in this direction, says Cribbens.

Convergence is also playing a part by adding more players to the IS services market.

"Even telecommunications companies are coming into the market and increasingly providing what they call data service as opposed to voice services."

Cribbens believes that some multinational companies feeling the pinch are considering whether they want to operate in the New Zealand market and may decide to look at countries with more opportunity for growth such as China.

There is also a trend away from huge contracts. Instead, organisations are breaking up their projects into multiple contracts covering various phases.

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