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| Gartner Says Consolidation to Continue Across the European IT Industry in 2003 |
| Gartner Warns European Enterprises to be Careful and Selective with IT vendors |
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Cannes, France, 5 November 2002 — Gartner today said the IT industry will continue to consolidate across all technology areas in 2003, but that consolidation will also spur the creation of new classes of companies in sectors such as telecommunications. It said 2002 saw the first examples of major players disappearing virtually overnight, and an end to the relative safety of being bailed out of difficulties through competitive acquisitions.
Speaking at the annual Gartner Symposium/ITxpo in Cannes, Gartner analysts took stock of some of the most significant trends that will take hold during 2003 for the telecom, mobile, IT services, software and hardware markets in Europe. It said the message to end user companies is to demonstrate caution and be selective when purchasing from an IT vendor. "There are currently too many players in the IT industry competing over a small expected growth in IT spend of 5.4 percent in 2003," said Steve Prentice, VP and director of research at Gartner in Europe. "Companies to watch will be those that understand and exploit the fact that European businesses are focused on optimisation. CEOs and CIOs will select vendors who give clear evidence that any IT investment will provide real business value." Telecommunication Telecommunication consolidation and a new breed of companies Enterprises end up spending 10 percent more Gartner said despite the gloomy picture portrayed in the media, the telecoms sector still sees year on year growth. However, it said the market is too crowded and predicts the sector is ripe for consolidation among the traditional operators. Speaking during the event, Neil Rickard, research director at Gartner said, "Most operators no longer have the financial strength to make acquisitions. 2003 will therefore see operators in financial trouble either close down, or face intervention by venture capitalists buying three to four operators and lumping them together into one mega company." Rickard said consolidation will take place over the next 18 months in Europe, but will differ for each individual country. He said operators not possessing a fixed corporate portfolio, i.e. providing only leased lines, are expected to be hardest hit. Gartner said the fate of KPNQwest showed for the first time that leading players can disappear in the space of days. "The days when operators in difficulty could rely on being bought by a competitor are gone," said Rickard. "We advise enterprises to take a focused approach to selecting the right telecom operators, balancing good price with the relative risk that their supplier will potentially not exist by the end of the year." While traditional telecoms operators are retrenching, 2003 will see will see a proliferation of a new class of companies, called Virtual Network Operators (VNO). "VNOs don't own networks but will facilitate the laying down of fibre," Rickard said. "Telcos can't pretend to do everything anymore, and VNOs will bolt together a wide range of services from multiple operators to deliver a full end-to-end service. VNOs will grow out of IT service companies and network equipment resellers or be pure play specialists." On price for 2003, Rickard said companies could expect 10 percent more on their bill, despite unit prices coming down. This is caused by an accelerating rate of bandwidth consumption. Mobile Gartner Predicts Three Operators Speaking at the Gartner Symposium/ITxpo, Nick Jones, VP and research fellow at Gartner said, "2002 became the year when 3G was plagued by 3D - debt, delays and doubt." He said, "Gartner expects 3G to happen in the longer term but it will continue to disappoint in 2003. 2.5G will dominate for several years." Gartner expects consolidation to begin in 2003, and predicts that by 2005, there will be no more than three mobile operators per country and three operators across all of Europe. Other predictions for 2003 include:
IT Services Market Predictions A roller coaster ride of change Gartner said the IT services market will continue to see growth in 2003, but will remain in the toughest environment it has seen since the early 1990s. It said the economic downturn is accelerating the transformation in the market towards consolidation and polarisation. This will leave the industry with a number of large aggregators at one end of the spectrum with a range of specialist players at the other. "The recent IBM/Pricewaterhouse Cooper merger is a clear signal to the market to expect similar scale mergers in 2003," said Roger Cox, VP at Gartner. "It also shows that even the largest players are now being hit." Outsourcing will see most activity in 2003, while the sectors demonstrating the highest growth will be utilities, retail, government, and a renewed focus on the small to medium sized businesses market. Corporate contracts will focus on essential short-term projects guaranteeing return on investment and outsourcing projects delivering cost reductions and business transformations. Dominant software and services companies will also raise the stakes on new ways of delivering IT value. "Big software companies are using their financial muscle and abundant resources to establish 'software as a service' offerings, primarily for small and medium sized businesses," said Cox. The business process outsourcing (BPO) market will continue to grow at a rate far higher than that of the total services market. However, this expanding market will start to see consolidation among service providers as early as 2004. Gartner analysts said that an emerging battleground in 2003 to 2004 will be around 'how' rather than 'what'. According to Cox, "The quality of IT services agreements and the quality of relationship management will start to take centre stage. Organisations will increasingly turn to 'trusted' service providers, and the financial analyst community will increasingly put the quality of long deals under scrutiny. 2003 to 2004 will be about new attitudes not new applications." Software Market Shake out expected in 2003 Gartner said the continued economic slump in business capital spending is changing the shape of the software industry, with top-tier software vendors gaining revenue share at the expense of pure-play players. Speaking at Symposium/ITxpo, Betsy Burton, VP at Gartner said software powerhouses have deeper pockets and can withstand the economic challenges much easier than many pure-play vendors, which have smaller revenue streams and cash reserves. "Solutions from struggling pure-play vendors have become less desirable from a financial perspective, even though they can be a better solution to risk-averse decision makers," said Burton. Gartner said vendors will need to fight harder to retain or gain market share as lower growth will start weeding out weaker players and consolidate the industry. Gartner predicts that by the end of 2004, 50 percent of the top 50 software vendors worldwide will be gone, having been subject to merger, acquisition, disposal or demise. Speaking at Symposium, analysts said the key battleground for software vendors in 2003 will be architectural dominance and 'customer lock-in' to control moderate IT spend. "As IT budgets get tighter, so does the battle for architectural domination," said Burton. Gartner said tight IT budgets have meant that buyers have not been able to satisfy pent-up demand for software projects to improve corporate business performance and IT infrastructure efficiencies. It said when budgets loosen in the second half of 2003 or the first half of 2004, the backlog of demand could cause a temporary growth surge that then settles down to normal growth rates. Hardware Market Predictions Can't see the light at the end of the tunnel Gartner said consolidation in the hardware industry over the last three years has reduced the market to a handful of key players, akin to the early days of computing. It said 2003 will be characterised by increasingly squeezed margins and flat growth, where vendors will need to re-engineer their cost of doing business to around 10 percent of revenues. The underlying market forces will bring significant change in the vendor landscape over the next three years. Lower growth expectations, shrinking margins, hardware commoditisation and falling average selling prices, will define the business climate for these vendors. In the PC market, Gartner predicts two to three major PC vendors will join forces in 2003 to create a new global aggregate vendor that will provide a common set of products on a global basis, while maintaining its independence. "The move towards more standardised computing platforms will lead the industry to invest less money in research and development," said Brian Gammage, principal analyst at Gartner. "While the industry has a number of exciting developments in the pipeline, there is now a question mark over the industry's ability to bring these developments to market in a way that will add real business value to users." Gammage said success will be down to the ability of those selling hardware to add value to the overall solutions. "In Europe, with a higher proportion of small and midsize businesses, this will depend on channel and distribution models." Gammage added, "The channel's ability to offer stronger incentives to pull people away from buying direct will be the determining factor for those PC manufactures looking to halt Dell's gains in market share." Gartner said most hardware manufacturers will be forced to move into other areas to find growth and additional revenues. This will further raise the barriers to entry into the hardware market and restrict the scope to expand the shrinking range of leading market players. Gartner said customers should use existing hardware longer to maximise return on investment, and use asset management software to manage the extension of PC deployment life. The Gartner Symposium/ITxpo is a global event run in Australia, Japan, the US and Europe. It is the IT industry's largest and most strategic conference, providing business leaders with a look today at the future of IT. For more than 10,000 IT professionals from the world's leading enterprises, The Gartner Symposium/ITxpo are key components of their annual planning efforts, and a place to gain insights into how their organisations can use technology to address business challenges and improve operational efficiency. GartnerG2 is a research and advisory service from Gartner that helps business leaders guide and grow their businesses. For more information on the report visit www.gartnerg2.com About Gartner |
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Contact: Laurence Goasduff Gartner + 44 7736 595 185 laurence.goasduff@gartner.com |
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