The latest research by IDC reveals that the Australian economy is sliding into a recession that will impact the ICT industry to various degrees. How vendors will be affected depends on the type of product or service they provide.
According to Jean-Marc Annonier, IDC Research Manager for IT Spending, the Australian economy is facing its biggest challenge in recent history. In line with other world exchanges, the Australian share market is experiencing extreme fluctuations.
Governments around the world are taking unprecedented measures to support a world financial system on the brink of meltdown. The resulting recession will probably be milder in Australia than in the US and in Europe but the level of economic activity will certainly slow down across most sectors of the economy. Unemployment will increase, domestic demand will lower, burden on social security will increase and defaults on mortgage repayments will increase, amongst other negative effects of a recession.
Annonier also added the long period of strong economic growth that we have known is well and truly over and businesses are going to carefully assess when and where to spend their money. The impact on IT vendors will be important. The reduced business demand for IT goods, exacerbated by a lower Australian dollar, will impact heavily on the revenue of the IT industry.
The IDC study also finds that:
Hardware will be the main casualty of the recession: Slower sales will adversely impact hardware vendors. Refresh cycles will get longer and there will be pressure on CIOs to continue to operate ageing fleets of PCs. Servers and storage will be less subject to cost compression but there will definitely be heavy scrutiny to ensure that costs are kept to a minimum.
The impact on software spending will be mixed: Projects designed to cut cost by boosting productivity or enhancing business operations are still likely to go ahead, at least in the short term. Spending on software such as database, ERM and CRM is expected to continue, albeit with a slower growth rate. Similarly, investment in virtualisation will continue as buyers will be looking at minimising hardware purchase. However spending on general purpose software such as office application suites and operating systems is likely to be significantly reduced.
IT Services will benefit of the crisis: Spending on outsourcing services is expected to increase in the short term, especially in the mid-market. The recession will also further boost demand for offshore outsourcing to low cost countries like India and China, specifically for infrastructure management and applications services.
Telecommunications will be mostly immune to the recession: Businesses will revert to more telecommunications to reduce travel costs. More meetings will be conducted through conference call or by video conferencing. The transition from traditional data to IP data will accelerate due to obvious cost benefits and this will also drive the adoption of voice over broadband to reduce the cost of fixed voice. Spending on mobile voice will continue to grow slowly as mobile phones have tangible business benefits and competition on the Australian market has maintained prices to levels that warrant extensive business usage.