3Q09 summary of the UK IT Industry

IT Spending: IT spending, at both global and UK levels, has fallen in 2009, although there have been signs of improvement in 3Q09. The major systems vendors reported revenue declines in EMEA in 2Q09. Hardware vendors reported year-on-year revenue declines. Following the sales declines of the hardware and software vendors, the channel players also announced declines in revenue. The largest ISVs reported revenue declines. Many large services vendors reported modest increases in UK revenues in 2Q09.

Employment: IT companies are cutting back on their employee costs, through headcount, salaries, pensions and other benefits. Certain new IT skills are in demand. A disproportionate number of IT workers from overseas are being brought into the UK.

Acquisitions: Two major hardware vendrs announced acquisitions of significant services companies: Dell is to acquire Perot Systems, which itself acquired the European business of BearingPoint. And Xerox is to acquire ACS.

Servers: The worldwide market for servers crashed in 2Q09, with sales falling 30%, to their lowest level in 13 years. Competitors exploited the uncertain future facing Sun's installed base.

PCs: The PC market has experienced a worldwide decline in shipments of about 5%, but Gartner believes it is now past the worst. HP has lost its No. 1 position in the UK to Acer and Dell. Two important new operating systems—Windows 7 arriving in October and Google in 2H10—could help revive the market.

Software: The principal software story of 3Q09 was the continuation of Oracle's strategy to become a major IT systems player, as exemplified by its bid to acquire Sun. But European anti-trust authorities may prevent Oracle completing the Sun acquisition with both Java and MySQL intact.

Infrastructure: Although many individuals are using online versions of spreadsheets and other office programs, enterprises are reluctant to move their applications wholesale to the Web, whether the offering is called SaaS or cloud computing. It is possible they have been influenced by the sluggishness of Oracle and Microsoft to put their highly lucrative software onto the Internet. Many European governments regard cloud computing as a threat, because the field is dominated by American providers.

Outsourcing: The outsourcing industry is consolidating—i.e. the combined share of the Top 50 is increasing—due to acquisitions and to customers reducing the number of suppliers they use. Accenture is targetting the BPO market for the first time, whereas it has been rumoured that HP could sell off the BPO operation it acquired with EDS. The larger Indian firms sense an impending increase in demand.

Services: With growth in audit and tax work flat, the big four accounting firms are turning to consulting for revenue growth. The support services market is flat for three reasons: competition, customers buying only what they need, and the decline of the hardware market. Dell started the roll-out of its modular servcie offerings in Europe.

Green IT: Companies will opt for green IT if it enables them to cut costs. Although many enterprises want a green project they can publicise, there is no well-known example of a UK company deciding, in the current economic environment, thoroughly to embrace greenness if it would mean a significant increase in costs. But most IT companies are developing green services for their clients.

The UK Public Sector: The UK government has spent increasingly large sums on IT, yet productivity has declined. Given the coming austerity, there will be future opportunities for IT companies. The Conservative Party, if elected to government, plans to cut back on contracts awarded to Capita.

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