Canadian IT spending update

Volume servers, customer relationship management software and services will make up most of the country’s IT spending throughout the rest of this year and into the end of the decade, according to a forecast by IDC Canada.

The Toronto-based research firm offered an update to the annual projections it usually makes near the beginning of the year that put overall growth at 4.3 per cent, down slightly from last year. On a global basis, IDC says IT spending is growing at 6.5 per cent, which puts Canada at around the seventh largest market worldwide.

In a webcast presentation, IDC Canada’s country manager Vito Mabrucco said Canada represents a $72 billion market today and will hit $81 billion by 2010, based on a compound annual growth rate of 3.9 per cent. A focus on productivity, pent-up demand and strong government surpluses will drive the growth, he said, while the impact of the Canadian dollar and “unthinkables” like the recent exposure of potential terrorists, could inhibit growth.

“In the early 2000s, our forecast had downward biases. Today, it has a bias upwards,” he said. “This is our forecast, but we wouldn’t be surprised to see it stronger than that.”

On the hardware side, IDC Canada forecast shipments of six million desktop units in 2007, with an overall growth rate of 12.2 per cent. PCs will make up about 5.5 per cent of that growth, but portable products such as notebooks will sell even more, at a rate of 22.7 per cent. An ongoing price war among notebook vendors is fuelling this trend, Mabrucco said, moving the market to sub-$800 laptops, despite new features being introduced.

The Canadian server market will represent $1.9 billion in spending, driven primarily by the volume server segment, Mabrucco said. This year marks the beginning of a transition, he said, where volume servers begins outselling the high end of the category, according to IDC.

“We’re continuing to see new technology, in the form of blades, multi-core and dual-core servers, and a movement towards virtualization and consolidation,” he said. “Virtualization increases the utilization of servers, which makes the low end server more attractive.”

Zoran Nikolic, managing director of Burnaby, B.C.-based GM Solutions Inc., said the price of volume servers, along with product bundles, was helping push units to the firm’s small and medium-sized business customers.

“Right now I have some offers from HP for a server, including software and hardware, for $700. If you go buy off the shelf products right now, just software they’re selling is more expensive than that,” he said. “Even when you are working with people who have small budgets, when you tell them (about) the promotions, generally they become interested.”

IDC Canada predicted the Canadian storage market will see a shift where more storage area networking products and network attached storage products will be sold than direct attached storage in 2007, while iSCSI will make up 11 per cent of disk drive revenues by 2010. Consolidation and compliance issues are boosting storage sales, Mabrucco said, but the complexity associated with managing the lifecycle of information may be putting off some enterprises.

In software, meanwhile, enterprise applications make up a $2.7 billion market, growing to $3.4 billion in 2010. Of that, customer relationship management leads the market with 5.8 per cent growth, followed by ERP at 5.4 per cent. Mabrucco noted the emergence of new players in this space such as and NetSuite, which are utilizing the software-as-a-service (SaaS) model and gaining acceptance for on-demand applications.

“The demand is still very light . . . we’re seeing very selective sourcing under this model,” said John Harris, vice-president of strategy and business development with Toronto-based ThoughtCorp. “BI and CRM and the whole analytics and customer intimacy, there’s no doubt at all that that’s growing.”

IDC forecasts security software growth at 10 per cent, and storage/systems management software at six per cent. Commoditization in this market is putting more pressure on pricing, Mabrucco said, and the industry need to find ways to get more adoption of standards.

The bulk of IT spending continues to go towards IT services, Mabrucco said, which makes up a $15 billion market. Although support services spending remains flat, he said it is starting to become blurred with managed services, as they come together in one contract.

“This may slow down the decision cycle,” he added. “When customers working on these contracts, they need to understand what’s included and what’s not.”

Outsourcing will grow to a $7 billion market next year, IDC said, at a rate of 4.8 per cent. Mabrucco said big deals will remain scarce, but managed IT services should do well. IDC has noted, however, that differing definitions of outsourcing, utility computing and managed services is causing confusion in the market.

Mabrucco said IDC bases its forecasts on documented macro-assumptions concering the GDP, the Canadian dollar and interest rates, as well as the 300,000 user surveys IDC conducts globally every year.

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