UK IT industry to take another dive

Things are continuing to get worse for the UK's software and services companies - but not as fast as they did last year, according to analyst house Ovum.

And the market is unlikely to grow as fast as the economy until 2006. Last year it took a four per cent dive, this year it should only be down two per cent.

Anthony Miller, Ovum research director, said: "Last year we warned the industry that it was in denial when talking about 'when market conditions improve'. For us, things will get better when they stop getting worse – and we think that that won't be until next year."

In the meantime the industry will have to endure a buying mind-set that wants more for less, as IT directors continue to be obliged to show a return within the first year of a major IT investment.

Miller thinks that the IT industry is now a mature market and, like other mature industries, its growth will be the same rate as that of the GDP – currently around 2-3 per cent per year. "It's not ever going to return to that sort of double-digit change we used to see," he said.

For the rest of the decade, Ovum sees the following trends:

- Multisourcing: an end to the 'unisourcer' and the use of consortia promising the best of breed to users and spreading the risk amongst suppliers.

- Offshore outsourcing: the cost gap between offshore and onshore is narrowing but suppliers should build, buy or partner offshore. Miller said: "Offshore players have changed the rules of the game. They're not a flash-in-the-pan. They're a fixed feature."

- Business process outsourcing: likely to continue to grow in public and private sectors. Miller said: "Public sector is the place to be now and for the next few years."

- Security: the increase in hacking, viruses, spam, fraud and the need for disaster recovery will keep security spending well up the priorities list.

Miller added: "It will be a tough market. Margins are already thin as they are. This will lead to a lot of consolidation."