Interest Returns to Infrastructure Software Space

After a three-year slump, certain areas of innovation in the
infrastructure software sector will help lead a ‘modest’ recovery as
technology becomes increasingly tied to an enterprise’s business processes,
according to a new report from Deutsche Bank.

“Companies must understand the linkages between its business requirements
and goals and the underlying technology infrastructure,” the DB report said.

The sentiments of the report, entitled “Growth…but it’s gonna cost
you”, echoed the remarks of IT business leaders from IBM, Unisys,
Microsoft and elsewhere, who earlier this week emphasized the importance of
business process-related or process-centric technologies — which is likely
to be a consistent theme at next week’s CeBIT America show in New York.

For years, IT infrastructure (and the software that support it) was the
realm of back-office operational experts — often hobbyists that enjoyed
tinkering with upstart projects like Linux — that had very little contact
or ties with senior management. And when business leaders got burned in the
late 1990s by the combination of over concern about the Y2K bug and over
investing in what eventually become the “dot-com” bubble, the door on those
back-offices were more or less slammed as well as any hopes of contributions
from those operational employees.

“We had a confluence of events that have made people very skeptical about
technology,” Larry Weinbach, Chairman, President and CEO of Unisys, said
earlier this week in New York. In fact, Forrester Research has quantified
that amount of overspending as high as roughly $60 billion, Forrester
Chairman and CEO George Colony said during a recent panel discussion hosted
by Unisys.

But while the Internet revolution didn’t pan out as some so-called
“visionaries” envisioned, businesses and governments have become
increasingly more dependent on technology for what Deutsche Bank called
“near real-time” business processes in dealing or communicating with
suppliers, customers, partners, competitors and investors. And that, in
turn, has forced technology executives and senior management to learn each
other’s language in an attempt of linking business and technology.

“Historically, [senior management teams] have been almost a slave to the
technology,” Deutsche Bank Analyst Brian Skiba told internetnews
during a brief telephone interview. “The CIO today is more of a hybrid that
is three-quarters businessman and one-quarter technology expert. The CIO has
been elevated in his visbility. He’s more of a businessman.”

“The need to understand the linkage between the two is clear. The path to
achieve this is known under various names – business process management,
business process re-engineering, business service management – all of which
roughly describe the same concept. We believe that companies will slow
document and understand the linkages over the next five years,” Skiba wrote
in his report.

Earlier this week, studies indicated that the worldwide business
process outsourcing
(BPO) market is expected to grow 10.5 percent to
$122 billion from $110 billion in 2002 and grow 13 percent annually until
2005 when the market will reach $248 billion.

To be sure, the DB analyst said that exuberance hasn’t returned.
“Today, we believe there is a lack of a major catalyst to spur another
massive wave of IT spending. However, pockets of technology innovation (such
as Java, Linux, 64-bit processing) are fueling certain market sectors,”
Skiba said.

Standards like Java and open-source technologies like Linux are
certain to get a significant portion of the limelight at next week’s CeBIT
America show, the first attempt by German events giant, Deutsche Messe AG of
Hannover, to bring its tradeshow to the U.S. The event runs from June
18-20 at the Javits Center in New York.

While Skiba does acknowledge that bigger vendors will capture an
increasing portion of market share, he does favor smaller niche players. On
Thursday, he initiated coverage of Mercury Interactive ,
Alteris , NetIQ and Red Hat with “buy” recommendations.

Skiba initiated Computer Associates , BMC Software and BEA Systems with “hold” ratings. The
analyst already had a “buy” rating on market leader Microsoft and a “hold” rating on Oracle due to the
sluggish growth prospects of the database market outside of the mid-market.

In the interest of fair disclosure, though, it should be noted that
Deutsche Bank admit to either sales-and-trading or investment banking
relationships with the companies mentioned within the report.

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