Suppliers thrive as corporate IT spending stalls

By Martin Courtney
02 Aug 2011 View Comments
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IT departments are struggling to get boardroom approval for upgrades, a reluctance to invest that puts UK companies at risk of falling behind international competitors.

A survey of 200 IT managers conducted by research company Vanson Bourne found that 45 per cent struggled to gain financial backing from the board with either all, or the majority, of IT investment proposals they presented. This figure rises to 60 per cent for larger companies employing between 1,000 and 3,000 staff.

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Nor did the survey show any significant differences according to industry sector: financial services fared worst, with 56 per cent battling for money in every or most case scenarios, while retail, distribution and transport and manufacturing stood at 45 per cent and the public sector at 42 per cent.

Separate research from Martec International confirms that retail IT investment in the UK is at its lowest average level since the company first began compiling statistics in 2002. The company’s managing director, Brian Hume, believes the budget squeeze is not only affecting retailers’ ability to upgrade ageing core systems, but also to expand the online systems needed to redress falling high-street sales, undermining their ability to compete in the future.

“It is a challenge to manage and keep up IT operations in a heavily constrained budgetary environment. CIOs have a tough job and they are using outsourcing and offshoring, and stretching the life of their current systems,” he said. “But the online IT budget is not going up because there is not enough money being saved from the in-shop IT budget.”

Similar pressures are affecting the European airline industry, according to Christoph Klingenberg, CIO at Lufthansa Passenger Airlines, who recently complained to Computing about CEOs constantly looking to drive IT costs down without affecting operational efficiency.

“My biggest challenge is how to get IT out of its techie corner and into the management’s discussions,” said Klingenberg. “Whether the CIO should be part of the board I do not know, but everyone - IT professionals, consultants and providers - will have to tackle the issue of getting IT into the boardroom if companies are to spend millions on new proposals.”

Air travel mirrors other industries in that most of the money being spent on IT appears to originate from developing countries rather than western Europe or the US. Statistics compiled by Forrester Research in June show that combined spending on information and communications technology for both western and central Europe would grow by 3.8 per cent to £486bn in 2011, compared with £650bn for the Americas and £594bn for the Asia Pacific region.

“Europe had a worse tech market downturn in 2009 and weaker recovery in 2010, and will continue to lag the US in 2011 and 2012,” wrote Forrester analysts Andrew Bartels and Peter O’Neill.

All categories of European ICT spend grew only moderately, they added, led by telecommunications services, which was followed by software (including SaaS), computers and peripheral equipment, communications equipment, IT outsourcing and systems integration services.

“Emerging markets are always going to deliver much stronger sales growth because they are smaller countries and they come from a much lower cost base,” said Mark Newton, regional director for the UK and Ireland at virtualisation specialist VMware, which saw global revenue from enterprise software licence sales grow 44 per cent year on year from $323m to $465m in the financial quarter ending 30 June 2011.

VMware parent company EMC also posted record quarterly revenue of $4.85bn in total (including VMware), with sales of data storage equipment growing 20 per cent from $2bn to $2.4bn. Combined profits tripled from $75m to $220m for the quarter.

The company does not split its financial results on a country-by-country basis so regional comparisons are impossible to make, but they show that somebody, somewhere is investing in IT.

Chip maker Intel forecast healthy third-quarter revenue, boosted by corporate PC and server upgrades as well as strong consumer sales in developing countries, which offset stagnant European and US markets.

Intel CEO Paul Otellini estimated earlier this year that the technology industry would need one server to handle application, data and service demands for every 600 smartphones in use, particularly for hosted high-definition (HD) video content.

Juniper Research has forecast there will be one billion smartphones sold by 2016 while Apple has also reported record quarterly revenue of $28.6bn (China alone accounted for $3.8bn), based largely on sales of 20.3 million iPhones and 9.2 million iPads during the period.


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