RealTime IT News

2002 Worst Year for IT

Hopefully, the worst is over for the IT services industry, as findings from Gartner Inc. indicate that 2002 was the most difficult year for the market.

While end-user spending on IT services suffered a 0.6 percent decline worldwide to $536 billion, the Asia Pacific region and Japan were the only places that experienced growth.

"Much of Asia is dependent on the global economy and its attracting developed markets' investments," said Kathryn Hale, principal analyst for Gartner's worldwide IT services group. "Although, overall, the region had a growth rate of 3 percent, 2002 ended with every market impacted by the global slowdown and performing much lower than expected."

The region that took the hardest IT hit in 2002 was Latin America — particularly Brazil and Argentina. Gartner attributed the decline to political and economic instability, buyer uncertainty, and weakness in the U.S. economy, producing a 7.2 percent negative growth rate.

IT services revenue in North America declined 1.1 percent, while Eastern Europe and Western Europe saw revenue slip 2.6 and 0.1 percent, respectively.

Preliminary Worldwide IT Services End-User
Spending Estimates for 2002 (Millions of Dollars)
Company 2002
IBM 40,139.0 7.5% 40,664.0 7.5% -1.3%
EDS 21,122.0 3.9% 20,702.0 3.8% 2.0%
Fujitsu 13,867.4 2.6% 14,351.6 2.6% -3.4%
Hewlett-Packard 12,211.2 2.3% 12.963.6 2.4% -5.8%
Accenture 11,514.0 2.1% 11,599.8 2.1% -0.7%
Others 437,402.1 81.5% 439,291.5 81.4% -0.4%
Total 536,255.7 100.0% 539,572.5 100.0% -0.6%
Source: Gartner Dataquest, May 2003

With its acquisition of PwC Consulting, IBM maintained its top ranking, but the poor performance of PwC Consulting in 2002 impacted its growth rate. Hewlett-Packard was a new entrant into the top 5 vendors in 2002, as the company's revenue roughly doubled when it merged with Compaq. Although HP's rank rose in 2002, the combined services revenue of both companies suffered during this transition year resulting in a negative growth rate.

The IT recovery may be partially fueled by the expected increase in enterprise technology spending, as a January 2003 Aberdeen Group survey found that CIOs planned to add 2.7 percent to their technology budgets over the year.

"The survey results show that IT spending growth will continue to be slow and incremental over the next 6 to 12 months," said Hugh Bishop, Aberdeen senior vice president.

Gartner's assessment of the 2002 spending revealed that project-based services — consulting and development and integration — performed the worst, while managed services, such as outsourcing and process management, enjoyed the highest growth rate. In 2003, however, Aberdeen's research indicated that the top five application categories with a positive intent to purchase are content/document management applications; query/reporting/analysis; project management; Web management applications; and Web analytics. The top three technology infrastructure solutions with a positive intent to purchase are application development tools; security gateways and services; and enterprise application integration software.

Aberdeen expects another $50 billion in total technology spending by mid-decade from the middle market enterprise sector, driven by software purchases.

"Many middle market enterprises have had their existing business applications for several years, and will be looking for new applications during 2003-2005. While these companies take such software purchasing decisions very seriously, they often lack the sophistication of a large corporation in wisely selecting vendors or products that are the best fit with their corporation," says Katherine Jones, research director at Aberdeen Group.