The Perfect Storm Has Left Australia’s IT Market In Its Wash
NORTH SYDNEY – OCTOBER 22, 2001 – On October 11th, 2001 IDC held a worldwide conference call discussing how the IT market has reacted to the terror unfolding in the world largest market. This event was chaired by IDC's Chief Research Officer, John Gantz and was a culmination of a worldwide exercise by IDC, termed Operation Beacon. Operation Beacon collected and extrapolated new trends and updated expectations from over 100 analysts in North America, Western Europe, and Asia. The Australian version of this research, focusing on the impact and expected trends locally and globally has been released today and is available on our website, http://www.idc.com.au . Note all percentages quoted in this document are in terms of year-on-year revenue growth.
Click the link below to access the full graphic presentation at: http://www.idc.com.au/Press/A%20_New_Reality.pdf
The Australian IT market continues to weather the perfect storm, the lingering effects of the Internet Stock Crash, slide of the US economy, downturn in telecom markets, and a lack luster Australian dollar. Prior to the events of September 11, 2001 IDC Australia expected the worst case for the local IT revenue growth to be approximately 4.6 percent year-on-year – now they may drop as low as 2.8 percent – a decline from the 10.1 percent growth experienced in 2000. With this on everyone's mind, IDC has developed a new worst case scenario. This scenario accounts for supply and demand-side information from the following technology sectors.
This growth has been determined by examining the combination of all aspects of our local research, the most extensive in the local IT market. IDC studies on the desktop, notebook, server, storage, printer, networking hardware, software, and services markets, as well as extensive end-user studies as recent as October 2001, have been used to reinforce the following commentary.
The PC market: The Australian PC market had already been impacted by weak consumer and corporate demand brought on by heavy investments in new hardware during the final years of the last millennium. Without strong incentives for investing in new platforms, even as processors zoomed past 1 Gigahertz, companies have put off expansive and extensive rollouts. One driver that has continued, however, has been the continuing mobilisation of the workforce.
Notebook sales have been largely driven by a migration of sales personnel, executives, and knowledge workers to this platform forsaking their dependence on traditional desktops. And while Windows XP is expected to make headlines and gradually attract users of existing operating systems, many companies are still grappling with the deployment of Windows 2000 systems.
IDC expects an increase in demand for network-based applications and services to be the impetus for new investment. This is supported by our analysis of software vendor investments in distributing computing applications, systems, and models. IDC expects this market to end the year with just over negative 5 percent year-on-year decline.
The Printer market: The Australian printer market has traditionally followed the PC market, and has subsequently been impacted enormously by reduced spending in 2001. Traditionally, the local inkjet market has been tied to consumer confidence, while laser to commercial spending and both have been in a state of duress during the past 8 months.
Meanwhile, high growth areas – wireless, photo, color laser – are still too small to impact revenue streams for suppliers and channels. IDC predicts a decline in revenues of nearly 17 percent year-on-year for 2001. But hope is not lost, as the printer base is aging this may drive an up-tick late in the year and into 2002 with growth expected to be 7.5 percent.
The Server market: The local server market is in a period of transition caught in the middle of an uncertain global economy. This is accentuated by the current trend of end-users replacing long-term goals of ROI with short-term goals of cost savings.
Combined with fierce competition at the low-end of the market, driving sales up and revenues down, IDC expects this market to be the worst hit with a year-on-year decline of nearly 18 percent. Having said this, expect advanced functionality in midrange UNIX servers, and the introduction of McKinley to boost vendor prospects by early 2003.
The Storage market: With the boom of the data storage market in 1999 and 2000 driven by Y2K, eBusiness, data warehousing, and content conversions this market has also been set back in 2001 with spending slowing down and price wars increasing.
The significant decline in server investments has also had a direct impact on this market's revenue streams. New technologies in optical and networked storage have emerged, which were just recently experiencing significant uptake.
While some analysis indicates an increase in distributed storage based on the WTC events, investments rely on the capabilities of enterprise and service provider WAN infrastructure. Many investments in this technology have been delayed given the rollbacks in this sector. Our forecast for this market is for a decline of around 11 percent year-on-year, in terms of revenues.
The Networking Hardware market: IDC Australia had expected a decline in supplier revenue from a 2000 high of 23 percent to around 7.5 percent, but the unprecedented worldwide telecommunications glut has driven this market into a downward spiral.
Investments have revolved around primarily existing rollouts and upgrades/add-ons rather than new investments in LAN/WAN technologies. In Australia, technologies for IP-VPNs and broadband have begun to take off, but do not yet push the edge of the available infrastructure. Instead of VoIP and mobile Internet adding new corporate and consumer functionality, these technologies have seen a sluggish acceptance as buyers focused on immediate cost savings rather then on longer term ROI.
This market has also been impacted by the supplier shake-up resulting from high investment in new Internet-economy business models, leaving industry stalwarts examining their own strategies and market message. Nonetheless, this immediate downturn, while hurtful in the current year, is expected to produce stronger dividends in the years to come. Rather than our expected continuing decline in 2002, we are instead expecting to see a resurgent investment in public and private infrastructure with growth over 6 percent in 2002 and 11 percent in 2003.
The Software market: Australia's application development tools have taken the biggest drop in the local software market as spending has varied widely by software market. As expected, during the past year, security and CRM software investments have continued to grow as Internet software has fallen on more difficult times.
Nonetheless, consumer connectivity is expected to increase as demand for communications-related software grows. The Australian software market is expected to continue to exhibit strong revenue growth of 12.5 percent, however this will fall far short of the predicted 15.8 percent earlier this year.
The IT Professional Services market: In 2001, device-related services were down, but outsourcing, network consulting, and contract-based services were less affected by global variables. Instead IDC Australia witnessed projects coming in smaller chunks as corporates reflected on strategic versus tactical outsourcing services.
With the trend towards reduced in-house spending on IT solutions, services are suspected to defy any continuing economic unrest. In fact, IT Service related revenues are expected to increase year-on-year to 12.5 percent, up from 11.1 percent in 2000. This market is expected to see steady growth for the forecasted period and with software, buoy overall IT spending through 2004.
The Telecommunications market: The local telecommunications market has followed western trends, although it can be argued not for the same reasons. Local carriers have seen reduced investments in fixed-line infrastructure due to international investments, build-outs in local access, and mobile network upgrades. This has not been as glamorous as large-scale IP-centric rollouts, but is paving the way for a competitive nationwide infrastructure.
Telecom suppliers have been hit hardest in North American and Western European markets where tremendous spending on bandwidth and IP-services are still emerging. Having taken a more cautious route, Australian service providers – instead of investing in the traditional 12-18 month lag-time – find themselves in a stronger buying position dealing with proven technologies.
IDC expects this will translate into higher spending during the next few years, our origional expectations were for the 2001 market to be flat year-on-year, currently we are expecting to see a drop to nearly -5 percent, but an up-tick to nearly 8 percent year-on-year in 2002.
IDCs other indicators: Ongoing research, InTEP Sessions, and IDC Australia's new Market Sentiment Model have allowed us to gather feedback from both the supply side and the demand -side of the IT business.
Furthermore, our research in the Australian small business and eBusiness markets offers market intelligence on the complete IT ecosystem. While August indicators were suggesting an expected turnaround towards the end of 2001, more recent indicators suggest that the Australian economy will experience a recession a recession until May-June 2002.
The Australian government expects the economy to continue to record solid economic growth and low inflation in 2001 and 2002, despite a much a weaker and more uncertain global economic environment.
With this in mind, IDC predicts the markets mentioned in our research will continue to reflect an expected shortfall in revenues and investments in 2001, nonetheless a rebound is expected next year. Pent-up demand for network-based applications and services will drive renewed investments, which in term will drive new hardware investments.
IDCs best case scenario predicts a rebound of around 7.8 percent and its worst case scenario predicts 6.3 percent, year-on-year. We expect this to be followed by double-digit growth in 2003 and 2004 regardless of either scenario.
Based on our findings, IDC proposes the following three take home points:
1) Investments by organisations in the late 90's have created cyclical patterns, which we are at the forefront. Hardware purchases have been sidelined, while services and software are better suited to weather the storm as enterprises often invest in them to maximise existing equipment ROI.
2) Economic slowdowns pressure organisations to make the most of short-term, rather than long-tern plans. Hence, few companies are investing in large-scale system deployments.
3) Reactive purchasing is in an upswing as technologies such as security, storage and network management offer peace of mind important to business managers and shareholders.
In conclusion, the IT market of 2001 has been inundated with change. While this has not been necessarily to its detriment, acts of terrorism have cast a shadow over all economic drivers on a global scale.
While we do expect businesses to continue to invest in IT to pursue competitive advantage in the markets they operate within, we cannot predict the lasting effect on international trade – a requirement for the global markets that have been fostered during the past century.
IDC speculates a strengthening Chinese financial system, an evolving EU and APEC market place, and a recovering US economy will in fact, create a more balanced union in the long-term.
IDC is the foremost global market intelligence and advisory firm helping clients gain insight into technology and eBusiness trends to develop sound business strategies. Using a combination of rigorous primary research, in-depth analysis, and client interaction, IDC forecasts local and worldwide markets and trends to deliver dependable service and client advice. More than 700 analysts in 43 countries provide global research with local content. IDCs customers comprise the world's leading IT suppliers, IT organisations, eBusiness companies and the financial community. Additional information can be found at www.idc.com.au
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