ARN

Cashing in on a bullish market

Integrators are reporting bullish market conditions, with several contacted by ARN claiming businesses were no longer thinking of IT as a necessary evil.

Data#3 CEO, John Grant, said the local corporate market was a competitive environment to be working in but was strong and buoyant. The Queensland-based integrator posted a statement to the ASX this month claiming its first half financials were expected to jump by 40 per cent compared to the previous year. The company is expecting to post a new earnings record as a result.

"The market has been strong for the past 18 months," Grant said. "Many of our customers are investing in projects that are outside the usual governance or risk management area. They're using IT to drive revenue for a change and shifting to enablement projects."

ON A ROLL

As examples, Grant said businesses were looking into IT to provide business continuity, disaster recovery, network enablement and IP telephony. "All of our businesses are going well, which is the salient point," he said. "There are opportunities in everything, even basic ICT procurement. We're having a good run."

New Data#3 deals include a four-year, $8 million contract with the Brisbane City Council for supply of PCs and services, as well as a two-year agreement with Suncorp as preferred national ICT supplier. The latter contract could be worth up to $9 million a year.

Market analysts at IDC concurred with Grant's positive outlook, predicting the integration market was well positioned for growth. According to its research, the Australian integration market is expanding at a five-year compound annual growth rate of 6.4 per cent. Local companies were expected to spend more than $2.4 billion on integration this year, or a tenth of total technology spend.

Research analyst for vertical markets, Phillip Allen, said integration was now a critical issue for Australian businesses. Spending was being driven by improved customer service, reduced costs and greater efficiency needs.

"It's like a pendulum swinging - market sentiment was leaning towards cost savings and batting down the hatches," he said. "But in the past year, and particularly during the past six months, it has swung towards innovation, growth and customer needs."

Allen cited network-oriented projects and integration as key growth drivers, as well as integration issues related to security and storage. Verticals of opportunity included government, commercial sectors and finance.

S Central managing director, Peter Mavridis, said it was experiencing strong sales right across its business divisions, with the services company chalking up 65 per cent year on year growth to the end of October.

Page Break

ORGANIC GROWTH

While half of this had stemmed from its new voice over IP division, the remainder was the result of organic growth in areas like application development, data centre hosting and Novell deployments, he said.

Mavridis said expenditure on business processing projects was also on the rise, with the average sale sitting at about $250,000. Last year, the figure had been closer to $100,000, he said.

Another shift was that organisations were being proactive about investing in IT and approaching integrators, he said.

"I think the drive has been that corporate Australia has had a good run in profitability. They're starting to reinvest this into their systems to drive improvements in efficiencies," he said. "Businesses are coming up with ideas and identifying issues internally."

Datacom CEO, Michael Browne, said customers were choosing to break up larger outsourcing contracts into selectively outsourced pieces. As a result, more were calling for local players who could be flexible and innovative to their business needs.

"Organisations are looking for different approaches and fresh perspectives on their issues," he said. "This means there are more opportunities that can be actively targeted by a broader range of organisations."

IDC's Allen agreed, adding the traditional big three outsourcing players - IBM Global Services, EDS and CSC - were losing market share.

"The large deals are being broken up into smaller chunks, which is making them more suitable for smaller organisations," he said. "There's also the issue of cultural fit. The softer issues about business are coming to the fore."

Project management had also increased in importance, according to IDC's list of top integration skills.

Datacom was continuing to improve its bottom line, recording annual revenue of $140 million in the last financial year. The company had achieved this by securing more projects with a larger number of clients, Browne said. In the past six months, the company had won contracts to provide identity management-related services to the Australian National University, Australian Taxation Office and Charles Sturt University. It was also working on pilot projects with Telstra and Vodafone.

HOSTING HEATS UP

On the helpdesk and CRM side, Datacom had scored deals with Unwired, Netgear and fast food chain proprietor, Yum Brands.

Another hot area of opportunity cited by S Central and Datacom was data centre services. Mavridis said customers had warmed to the prospect of hosting and were increasing the amount of systems they outsourced.

"Customers are realising the criticality of their processing environment," Datacom's Browne said. "In the past, they could provide the environment for their own IT systems. But as you get a greater concentration of infrastructure in smaller spaces the power and heat costs go up massively. Now these environments are not passing muster."

Data#3's Grant was not sure how long the positive market conditions would last but, for S Central's Mavridis, strong growth was expected to continue for at least six month. However, IDC's Allen warned the industry could be almost at its peak in terms of project deployments.

"There are early signs that we are at the peak of a wave," he said. "It's a case of be alert, not alarmed."