Saturday, 10 November 2007

Mediocre growth

In 2002 I gave my "IT's all over now?" speech which dared to suggest that growth in IT would henceforth be modest - unlikely to exceed GDP over any medium term period. The speech was greeted with derision by some who really believed that we were on the cusp of a return to the double digit growth we had got used to in the previous decades. As it turned out, there was no growth at all in the two years following my talk. The industry actually declined. Since 2005, we have experienced a return to growth but, at 4-6% that is only around GDP (don't forget - as most do - that GDP strips out inflation. For headline growth to equal GDP, you have to add inflation back in. So if GDP is 3% and inflation is 2.5%, your headline growth has got to be 5.5% to keep pace with GDP)

I've just been looking back at the IT Services-oriented results announced recently:

  • Siemens Business Systems grows 1% in Q4

  • BT Global Services revenues flat in Q2 if you strip out acquisitions

  • T-Systems revenues down 8.1% in Q3

  • Capgemini revenues up 6.2% in Q3

  • EDS grows 4% in Q3

  • CSC declines 1% in Q1

  • Unisys down 1% in Q3

  • Logica grows 3.6% in Q3

The only two double digit increases I could find was IBM Global Services - up 10% in Q3 - and Accenture - up 23% in their Q4.

Right now I somehow doubt that IT Services growth of around 6%, which seems to be the concensus, will actually be achieved in 2007. 5% looks closer to me right now. But it's the outlook for 2008-2010 that is beginning to worry me - particularly in the UK.

Public sector IT services growth is set to fall anyway as most of the big new IT projects that have fuelled the industry in the last 10 years, fall away. Also I suspect the cost squeeze on suppliers will be greater than anticipated as Brown tries to rein in expediture. It had been anticipated that Financial Services would be the 'star' but the current credit crisis means that I now have great doubts about that. Remember, Financial Services, at 21% of the market, is second only to Public Sector (31%) Missing targets by just a few % points in just those two sectors has a BIG effect on the overall market growth actually recorded. With consumer confidence plummeting, I also doubt that retail and manufacturing will be as strong as currently expected.

Indeed, I suspect that we are in for a period of 2-3 years where the UK IT services market will not show any headline growth at all - which, of course, would mean a decline in real terms after inflation was stripped out.

I suspect I will receive the usual howls of protest and accusations of being too gloomy, talking the industry down etc. So, OK, if you want to plan for overall growth that is in excess of the market average, that's fine and dandy with me. Indeed, if you are "brighter than the average bear" - as Accenture has proved of late and IBM seems to be demonstrating right now too - then I'm sure you too can and will do much better than the 'average'. But I'd point out that I have built my 'reputation' on the accuracy of my forecasts over many decades and usually against the views (or hopes?) of most at the time. If I'm right this time too and, indeed, you do better than the average, then there are going to be quite a few others who are in for a very difficult trading period indeed.

No comments: