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Looking Through The IT Crystal Ball

Ready to crunch data.
Singapore (UPI) Dec 07, 2004
The IT industry is coming of age, which means slower growth looking ahead as in any other mature industry, and new challenges for companies to bring in revenues.

Amongst the new trends to watch for in 2005 will be the consolidation of the PC industry, the growing use of open source software, a continuing of booming offshore IT services and the emergence of micro-commerce, analysts at research firm Gartner predict.

With the IT industry maturing, the key word is increasing efficiency. The economy has been difficult in many countries over recent years and the focus for many is now on efficiency, said Bertrand Bidaud, Vice President, telecommunications for Asia Pacific at Gartner.

Personal computer growth, by unit, is forecast to average 5.7 percent annually from 2006 through 2008, according to Gartner, half the 11.3 percent average of 2003 through 2005 and the research firm expects PC vendors to experience at least 3 lean years after 2005, with three of the top 10 vendors leaving the market by 2007.

Only Dell has been consistently profitable over recent years, so something has to happen. This industry has to become more profitable, Bidaud said.

The top 10 worldwide vendors, by units shipped, are Dell, Hewlett-Packard Co., International Business Machines Corp., Fujitsu Ltd., Fujitsu Siemens Computers, Toshiba Corp., NEC Corp., Apple Computer, Lenovo Group and Gateway.

Analyst Martin Gilliland pointed that Fujitsu and Fujitsu Siemens were bound to consolidate under one unit, while IBM and HP's PC divisions are vulnerable because of profit issues.

Gateway is also vulnerable because of struggling business. Dell is really the only one impervious (to the consolidation) trend, because it has been profitable from day one, Gilliland noted.

Gartner's prediction could not be timelier, as Lenovo Group, China's largest computer maker, confirmed Tuesday it was in talks with a major international company about a possible acquisition.

Such discussions are at an advanced stage but no definitive agreement or letter of intent has yet been signed, Lenovo said in a statement, adding There can be no assurance that any such agreement or letter of intent will be signed.

Market observers are speculating Lenovo may buy International Business Machines Corp.'s personal-computer business for up to $2 billion, which would give the Beijing-based group an immediate share of the European and American market.

Lenovo, which used to be known under the name Legend, is the eighth-largest computer maker in the world, but globally only 2 percent of the PC market, compared with 17 percent for Dell and 5.6 percent for IBM, according to Gartner.

Most of Lenovo's sales are in Asia, excluding Japan, where the company has a 13 percent market share.

PC sales now only account for about 10 percent of IBM's total sales, and PC profits have been slim. Morgan Stanley estimates the PC business contributed less than 1 percent of the company's earnings per share.

The second important trend in Asia identified by Gartner will be the growing importance of Open Source software for applications in core business processes, with 60 percent of large and mid-size government agencies in the region expected to use Open Source by 2010. This would compare the 15 percent penetration rate today, Bidaud said.

Incidentally, last week, Beijing's municipal government announced the cancellation of a $3.6 million contract that would have allowed it to use Microsoft software for a period of 3 years.

The Chinese government has been strongly promoting alternatives to compete with established global software vendors, supporting Red Flag Linux and an open-source collaboration effort by China, Japan and South Korea.

Other Chinese vendors, such as Kingsoft, have also made considerable progress in competing directly with Microsoft, especially in government IT purchases, which industry experts estimate to be worth $4.8 billion annually.

The third important trend will be the rising use of VoIP and IP telephony, which will pose new challenges to traditional telecom carriers.

We expect voice as a standalone revenue source to disappear in many markets as carriers speed up attempts to find new sources of revenue outside of traditional telecom, Bidaud predicted.

For 2005, Asia Pacific will remain one of the fastest growing regions for telecommunications with a forecast of 140 million additional subscribers, up 14 percent on this year.

However, Bidaud warned that while the telecommunications market continues to stabilize, there are already signs that a new round of deep restructuring in markets and business models will happen in the next 5 years.

Bidaud noted that while some telecoms have tried to slowdown their customer's move toward broadband, they could not delay the market forever.

He suggested that one possible source of new revenue would be content, with application on the consumer space like video games.

Meanwhile offshore IT service is expected to growth from $18 billion to $50 billion in 2007, with the growth driven by corporate looking for rising efficiency.

Micro-commerce, defined as electronic transaction of under $5, also has significant room to growth in Asia, with the use of mobile phone playing a role.

Gartner is predicting that enterprise spending on information communications and technology in Asia Pacific will grow 7.6 percent next year to $208.7 billion, compared with the global figures of $1.747 trillion and a growth rate of 5.4 percent.

Asia will be growing significantly faster than the rest of the world. About 40 percent faster, but we're no longer talking about sky-high growth rate, Bidaud told reporters at a press conference.

Yet behind the slower top line growth there are segments in fast evolution, some are in decline and some are ready to boom. For vendors the stakes couldn't be higher. If they miss the new wave of growth, they'll be history, he predicts.

Corporate spending on hardware in Asia next year will rise 6.3 percent to $36.9 billion with software spending increasing 12.4 percent to $5.6 billion, telecom growing 7.5 percent to $132.5 billion and IT services gaining 8.4 percent to $33.5 billion.

All rights reserved. Copyright 2004 by United Press International. Sections of the information displayed on this page (dispatches, photographs, logos) are protected by intellectual property rights owned by United Press International. As a consequence, you may not copy, reproduce, modify, transmit, publish, display or in any way commercially exploit any of the content of this section without the prior written consent of by United Press International.

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