Analyst firm Pierre Audoin Consultants published a bleak forecast for the UK software and IT services market, stating that the market will decline faster than expected during 2009 as "the economic downturn forces organisations to rein-in investment on new business applications and project services engagements".
The financial health of the IT sector has been centre stage during the recession, not only because of its significance in its own right, but also as a barometer of attitudes toward spending across vertical markets. And so far a mix of positive and negative findings have been revealed, indicating uncertainty more than anything else.
According to PAC, during 2009 UK software and IT services spend will decrease by 1.3%, compared with the 1% decline it had forecast earlier during the year. It still believes the sector will return to growth in 2010, although at a slower pace than originally expected.
It was noted that clients are continuing to negotiate aggressively with both new and incumbent suppliers, while also exploring the benefits of offshore sourcing. While many organisations have frozen or cut their discretionary IT budgets, there has been an increase in outsourcing spend, as businesses aim to reduce their IT operating costs and focus on core, strategic activities.
The biggest UK spender for software and IT services is the public sector, which makes up nearly 25% of the market, and which is set to increase its spend by 4.3% during 2009. This expenditure will be driven by attempts to create cost efficiencies as well as investments in specific new programmes, including border control and defence initiatives. Previously, it had been noted that the government is warming to the potential of offshore outsourcing due to the potential cost savings, despite the political sensitivity associated with sending IT work (and jobs) overseas.
Industry sectors that are cutting spending most severely include retail, services and manufacturing.
Retail IT cuts bottoming out
Separately, Fujitsu commissioned research into IT spend in the retail sector, which found that while 43% of respondents had seen IT budgets shrink as part of cost control measures, the majority do not expect to see further cuts -- this despite the fact that 95% expect the recession to last for another two years.
It was noted that 20% of respondents have seen their IT budgets increase, as management teams look to invest in businesses during the downturn "to emerge fitter, leaner and stronger". While 95% of retailers related their organisations as efficient, only half have specific productivity targets in place.