Services choice faces shrinkage - analysts

Services choice faces shrinkage - analysts

IT analyst Gartner Asia-Pacific has warned of consolidation in the IT services market and named companies such as EDS, Unisys and Fujitsu as possible takeover targets.

In a series of regional forecasts focusing on the hottest topics for 2003, Gartner said a shake-out was inevitable and several of the current major players were expected to merge in the IT services, hardware - particularly storage - and telecommunications markets.

Australia-based Gartner research chief, Bob Hayward, said vendor consolidation would not only continue but accelerate.

"For most medium[-sized] to large enterprises, at least one strategic vendor partner will cease to exist in its present form by the end of 2003," Hayward said. "These changes are by no means occurring among the smaller vendors only. Many of the largest and best-known names will be among those transforming or disappearing in 2003. This turbulence is a global phenomenon.

"Last year who would have thought that Compaq and HP would get together or IBM and PricewaterhouseCoopers."

Hayward said giant services companies such as EDS, Unisys and Fujitsu may be doing reasonably well in Australia and New Zealand but they were going through tough times globally.

He also wouldn't be surprised to see a cash-rich company such as Microsoft or Cisco buy a services company this year because they were "reasonably weak" in services.

"If you look at any mature, global industry there are only two or three main competitors that are viable and yet in the IT industry there are still dozens and dozens of players," Hayward said. "There are just too many."

IDC analyst, Mark Cribbens, agreed with the general notion that the number of IT services companies would shrink.

He said there were still too many players and that competitiveness would increase as large vendors looked to move into services because of declining margins in hardware.

"They're turning into total solutions providers," he said.

IBM had already done this, HP had huge untapped potential and Novell was trying to move in this direction, Cribbens said.

Convergence is also playing a part by adding more players to the IS services market. Cribbens said: "Even telecommunications companies are coming into the market and increasingly providing what they call data service as opposed to voice services."

He said that some multinational companies feeling the pinch were considering whether they wanted to operate in the New Zealand market and might decide to look at countries with more opportunity for growth such as China.

There was also a trend away from huge contracts, he said. Instead, organisations were breaking up their projects into multiple contracts covering various phases.

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