IT outsourcers face slim growth prospects

 

Analysts predict to standardised services, lower costs.

IT outsourcing users should expect increased standardisation of the infrastructure products they consume as providers battle price and revenue pressures, according to analyst firm Gartner.

The firm released research that pegged year-on-year revenue growth for IT outsourcers at 7.8 percent worldwide, and 6.4 percent in Australia.

Some of the growth was attributable to currency fluctuations but the result was "still pretty healthy", according to Gartner vice president and distinguished analyst Rolf Jester.

"It's positive and that's the good news," Jester said. "When you look around the world, any piece of positive economic news is to be welcomed."

In global terms, IBM maintained its lead in the IT outsourcing market with revenue up 7.8 percent in 2011 compared to 2010.

Rounding out the top five by revenue were HP (two percent year-on-year growth), Fujitsu (10.3 percent), CSC (flat growth) and Accenture (18.2 percent).

While there were some high revenue-growth rates in the mix, Jester warned that such growth would decline in the short to medium term.

"What we do believe is for the next three years through 2015, that growth is going to settle down to around about the two percent mark, give or take a percentage point, which is sort of close to GDP growth," he said.

"In other words we're not talking about an industry that's different from the economy any more. It's a mature industry."

Jester said there was still demand for outsourcing of IT infrastructure but industry players were being hit by negative price pressures.

"Obviously on the demand side people are trying to save money, but on the supply side you've got low cost providers entering the market such as from India, and they're growing much faster than the market rate," he said.

"You've [also] got cloud as a phenomenon and generally industrialised, low-cost services all helping from the supply side to push prices down."

Jester predicted that such price pressures would be reflected in more standardisation in the types of infrastructure services provided by outsourcers.

"They'll just have to standardise the services more, which will also be a challenge for users," he said.

"Users will have to understand that, yes, low cost services will be available, they will be enterprise class services but they will be standardised.

"if you want to customise, you'll have to pay for it."

Telstra still in top five

In Australia, the make-up of the top five IT outsourcing providers is slightly different. IBM is still in pole position, but it's CSC, Telstra, HP and Fujitsu in that order that round out the top five spots.

According to Jester, Telstra's place in Australia's service provider rankings has been solid for at least two-to-three years.

"[Telstra] moved there ... because of the whole redefinition of what IT services are," he said.

"A large part of what they do now is the same as outsourced or managed services."

CSC's performance in Australia is also a bright spot for the company in an otherwise dour period.

Three days ago, CSC posted a US$158 million loss for the fiscal fourth quarter, capping a year CEO Mike Lawrie called "very poor".

"CSC had a really bad quarter worldwide, but continue to do quite nicely in Australia," Jester said.

"They grew somewhat, not a lot, last year, but they've still got the number two market share [locally]."

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IT outsourcers face slim growth prospects
 
 
 
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