IT industry analysis—2009 Week 24—on one page

IT SPENDING
According to a Gartner survey, about half of CIOs have changed their IT budgets since the start of this year, and 90% of them said the change was negative. They've cut back on consultants, software and hardware purchases and they're renegotiating vendor contracts. In the data centre, the average cost of a transaction continues to fall, but the volume of transactions continues to grow by 10% to 15%—hence the growth in storage shipments. In the past, as revenues grew, so did transaction volume. But since the start of this year, CIOs began reporting that relationship is broken. Transactions continue to grow even though revenues are flat to down. In banking, for example, balance inquiries are one of the fastest-growing transaction types. It doesn't generate any revenue, but it does generate a lot of work. When the economic recovery begins, IT budgets will lag by one or two quarters, because IT spending is a trailing indicator.

SERVICES
Outsourcing providers experienced business as usual for the first six to eight months of 2008 but then encountered the beginning of the downturn, cccording to Gartner. This surprised the firm's analysts because the potential cost savings from outsourcing usually keep the segment buoyant. The Indian vendors were affected early in the economic downturn, as they rely heavily on the financial sector, and typically lead with offshore application development projects which can easily be delayed in tough times. Gartner believes the global IT services market reached $806bn in 2008, up 8%.

According to IDC, the European IT services market is set to enter negative growth (down 0.6%) this year as support, training and project revenues fall. Project revenue is predicted to drop 3% while firms have get cold feet about investing in major deployments or costly upgrades. Outsourcing is still expected to grow this year, with revenue projected to hit 4%. Support and training will have a particularly awful 2009, with revenue dropping almost 5%. IT training market will plummet by 10% as firms book education only when course are needed.

In contrast to some of their western counterparts, neither TCS nor Infosys is slashing jobs in response to the slowdown. TCS claims it has advantages over competitors, including skills with the latest technologies and a highly motivated, skilled and mobile workforce. The company is currently selling its services as packages to appeal to cash-strapped customers. "Customers are looking for integrated solutions such as IT, infrastructure, BPO and testing services from one supplier," said a TCS executive. "Over one-third of the deals we won last year were for two services or more." About 30% of Infosys's staff are known as 'bench workers', which means they work full-time when a project is on but are retained even when there are no client projects. Then they are do things such as building new platforms for Infosys. It is only a matter of time, wrote Computer Weekly, before Indian suppliers overtake western competitors through competitive advantages such as flexibility, ambition and employee commitment.

In its last set of results as a separate entity, Fujitsu Services reported revenues of £2.8bn (up 7%) for the year ended 31st March. Its order book was down to 6% to £6.7bn. Revenues in the UK grew 4% to £1.7bn. Fujitsu Services did not win a single large deal last year.

HARDWARE
The worldwide storage market fell 18% to $5.6bn in the first quarter, according to IDC. The total capacity shipped rose 15% to 2.1 petabytes. HP led the market with a 17.4% share, with EMC second on 15.5%, IBM third on 14.4%, and Dell fourth on 11.7%.

Distributors expect the number of reseller collapses to increase later this year. The CEO of Ingram Micro expects to lose about 15% of its reseller population this year, compared to a usual churn of 5-10% a year. While some resellers might be able to hold on for six months of downturn, he said, 18 months was not viable. In a downturn, it is often the lack of credit that administers the killer blow to resellers.

TRANSACTIONS
Dell has achieved more than $3m from Twitter followers who clicked through its posts to its websites to make purchases. Dell says it posts 6-10 times per week to its DellOutlet account, which is where the majority of Twitter-based sales have come from. Almost every post includes a coupon or a link to a sale, and about half of the posts are Twitter-exclusive deals. The PC maker, which has about 600,000 followers, is one of the Top 100 most-followed accounts on Twitter.

Many iPhone applications cost a few dollars to load onto your iPhone. Although some iPhone apps have generated hundreds of thousands of dollar sales, most developers have barely broken even. But soon Apple will enable developers to take further payments within applications sold through the iPhone App Store. This will change the economics of the mobile application market, and is likely to increase Apple's market share because, until they have exploited this enhancement, developers will be in no hurry to work with rival platforms such as the Google Android or Palm Pre. Apple's App Store uses a well-established ecommerce platform, iTunes, to bill customers, which has helped make downloading and paying for applications as easy as purchasing and downloading a song. By contrast, Apple's competitors have had to build their own mechanism for discovering and paying for new applications from scratch. And as a result, virtual storefronts, such as Google's Android marketplace, have been slow to get off the ground.

...AND FINALLY
The FT listed seven signs of corporate inertia—indicators that the board is too locked into its past:

1. Your CEO appears on the cover of a major business magazine. Praise from the press reinforces management’s attachment to their commitments.
2. Management gurus single out your firm for special praise. Just remember the curse of In Search of Excellence.
3. The CEO writes a book while still in his post.
4. Building a grand corporate headquarters often signals that executives have declared victory. The best giveaway is an indoor waterfall.
5. Have a sports stadium named after the company.
6. Competitors share the same zip code. Entire communities of similar companies can fall prey to active inertia.
7. Top executives look like clones. A homogeneous group of top executives often selects and promotes other managers based on their adherence to existing commitments. They also lack the diversity to envision alternative way of competing.
   
   SOURCES USED IN THIS ISSUE

• Channel Register (www.channelregister.co.uk)
• Channel Web (www.channelweb.co.uk)
• Computer Weekly (www.computerweekly.com)
• Financial Times (www.ft.com)
• Forbes (www.forbes.com)
• Nelson Hall (www.nelson-hall.com)
• The Register (www.theregister.co.uk)
• Silicon.com (www.silicon.com)