FRAMINGHAM, Mass. -- Following this year’s "tech resurrection," with a return to positive IT spending growth, IDC is predicting a "tech realignment" in 2005. According to Frank Gens, senior vice president of Research at IDC, "Beneath the surface of an almost boringly moderate growth rate of 6%, 2005 will be a year of enormous turbulence in the IT market with lots of consolidation and realignment in many sectors.”
IDC’s outlook for the year ahead includes:
# Moderate worldwide growth in IT spending will keep the pressure on IT suppliers to cut costs, target better-than-average-growth customer segments, and deliver higher-value solutions. IDC’s prediction of 6% growth assumes improving IT growth in the U.S., modest improvement in Western Europe, strong growth in the emerging IT economies of Central and Eastern Europe, China, and India, and growth struggles in Japan and Latin America. Of these assumptions, European recovery has the greatest downside risk.
# In the enterprise, businesses’ migration to a dynamic IT environment – with greater IT efficiency and better business-responsiveness – will continue to drive IT investment in the following major segments:
# In the hardware side of enterprise IT market, commoditization, with downward pricing pressure, will continue to squeeze suppliers. The growing acceptance of blade servers will put additional downward pressure on the overall server market while low-cost, high-capacity drives will bring about further price erosion in the storage market. Meanwhile, the semiconductor market will experience a correction in the first half of 2005, followed by a modest recovery.
# In the infrastructure software world, systems vendors like IBM, HP, Sun, and EMC will continue to buy up companies, large and small, to fill out their software portfolios and create a complete dynamic infrastructure platform. Likewise, independent infrastructure software players like Microsoft, CA, and Novell will spend 2005 expanding their offerings through mergers, acquisitions, and alliances. According to Gens, “The interesting question is: Are these two communities – that have depended on each other for success – headed for a showdown? And will Dell, which has stayed largely out of the software game, be forced to follow IBM, HP and the others?”
# In the $100 billion application market, it will become clearer that competition is moving away from developing “the killer app”. Instead, applications software vendors like SAP, Oracle, and PeopleSoft, and middleware vendors including IBM and BEA, will continue jockeying to define and own “the killer application platform.” According to Gens, “Microsoft, with a foot in each camp, and failing to close a merger with SAP in 2004, is likely to attempt an audacious buy in 2005 to strengthen its hand in this critical battle.” Similarly, the highly-fragmented data and information management software industry will spend 2005 restructuring, with companies like IBM, Oracle, Microsoft, Software AG, Open Text, EMC/Documentum, Informatica, Ascential and others driving consolidation to address businesses’ enormous information access problems.
# In the IT/Business Services sector, IDC expects “offshoring” to increase across a number of areas as the industry races to lower its cost structure and improve its efficiency. At the same time, emphasis on offering greater business value to customers will produce a renewed focus on business process outsourcing. Here, IDC predicts that business process consulting skills will be in great demand and short supply in the U.S.
# Further consolidation in the telecommunications industry is inevitable in 2005, with the FCC waving the green flag and a nearly unlimited number of possible deals. Meanwhile, the telcos and cable companies will continue their battle for dominance in the consumer market with the introduction of “grand slam” offerings that bundle wireless voice in with their “triple play” bundles of fixed voice, broadband Internet, and cable TV. And VOIP will finally go mainstream in 2005 with an acceleration of high volume cut-over deals by large enterprises and the large-scale delivery of mainstream consumer offerings announced last year by the incumbent carriers.
# The consumer space will continue to be dominated by the latest digital devices, with new handheld game consoles, hard-disk drive MP3 players, and digital cameras leading the market. Broadband adoption will also make further gains as price points fall further.
