We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Thu 30 Dec 2004 04:00 AM

Font Size

- Aa +

Turbulent 2005

The IT industry will grow only slightly faster than economic growth, however the seeds of the ‘next big thing’ will be sown this year, leading to a boom tech spending starting in 2008 and continuing through 2016.

|~||~||~|The global IT sector was one of the three powerhouses in 2004 and while similar trend is expected to continue in 2005, it is going to be a bumpy ride. The growth will happen, but at a cost. Beneath the surface of an almost insipidly moderate growth of 6%, 2005 will be a year of immense turbulence with lots of consolidation and realignment in many sectors.

Amid all the ups and downs 2005 will a boom year for the IT sector, however as businesses in the Middle East become more savvy and selective than ever with their IT budget, investors will have to find those opportunities in order to exploit them.

The expected growth, which is a small improvement over the 5% growth of 2004, suggests the global IT market will exceed US$1 trillion in overall spending, delivering about US$60 billion worth of net spending growth, says research firm IDC.

Technology stocks in the US have under performed and professional investors have reduced their commitment to the industry as a growing number of analysts question the outlook for what was once Wall Street's flashiest sector, according to a US media report. Among its more vulnerable areas is the computer manufacturing industry.

Although Dell, HP and Apple Computer released solid Q304 earnings in 2004, a report from Gartner Group predicts massive consolidation when the current wave of corporate PC-buying tapers off. There is a strong probability that three of the top 10 PC makers could be out of business by 2007, according to Gartner.

The report, released Nov. 29, did not speculate which companies may be affected by the consolidations, but suggested there simply would not be enough business in the future to support the current number of vendors.

However, amid this dismal outlook for corporate America, comes the good news for emerging markets like the Middle East. The forecast is that from 2006 to 2008, emerging markets are likely to account for more than 60% of market growth.

IDC says moderate growth in IT spending will keep the pressure on IT suppliers to cut costs, target better-than-average-growth customer segments and deliver higher-value solutions. The analyst firm’s prediction of 6% growth assumes improving IT growth in the US, strong growth in the merging IT economies of Middle East, China and India and growth struggles in Japan and Latin America.

Forrester Research says computer hardware spending in 2005 will hit its stride at 9%, network equipment will grow modestly at an average of 4%, software spending will grow 3%, while IT consulting and integrations spending will post a modest growth of 4%. However, only 15% of enterprises will reduce IT spend this year. Overall, 37% of them will spend more on IT in 2005 compared to the previous year.

The Middle East’s total IT market is expected to reach US$9.25 billion by 2005 and US$13.35 billion by 2008. At the forefront of this growth will be the IT services market in the Middle East and North Africa (MENA) region, which will cross US$3.17 billion by 2008, utilities, government administration, communications and financial services in the Kingdom of Saudi Arabia (KSA), will secure 68.1% share of the spend by 2008.

The small-to-medium-sized businesses (SMBs) in KSA will account for 32% share of the Kingdom’s spend in 2008. The United Arab Emirates (UAE) vertical sector will secure 60.5% share of the spend by 2008. ACN polls show that 74% of regional businesses will increase their IT budget in 2005.

One organisation that has ambitious plans and the budget for 2005 is Dubai Municipality. The government body wants to provide 90% of its services online by the year 2007. Currently, it offers 147 online services. The majority of these services are aimed at the businesses community, although it does provide some services to the public sector.

“We have orders to move 90% of our services to the internet by 2007 and we are confident of fulfilling that goal. The IT industry in the Middle East is growing enormously and e-government has been at the forefront of this massive technological leap. The Government of Dubai has a 100% commitment to e-government in the year 2005 and beyond,” says Ahmed Bahrozyan head of e-government at Dubai Municipality.

“We will also increase our budget this year. In terms of actually transforming services to e-government, we will be spending anything between US$1.6 million to US$2.2 million a year. There is a separate infrastructure budget as well, and if we bring it all together, the organisation will spend well over US$2.8 million annually,” says Bahrozyan.

Bahrozyan also believes e-commerce will reach another level in 2005. He concedes that e-commerce in the Middle East has not achieved its full potential, but remains confident of its success.

“E-commerce in the region faces the same challenges it faces around the globe. Security may be the biggest challenge worldwide, but I see it as a less of an issue in the Middle East. I think privacy of individuals is taken much more seriously in the Western world compared to this region. There is much more trust in this part of the world and I think that is a plus for e-commerce,” he notes.“Furthermore, the e-commerce initiative has the complete backing of regional governments.”

IDC believes the major growth will come from enterprises’ migration to a dynamic IT environment that boasts greater efficiency and better business-responsiveness. This will continue to drive IT investment in several major segments. On the hardware side of enterprise IT market, commoditisation with downward pricing pressure will continue to squeeze suppliers.

“The growing acceptance of blade servers will put additional downward pressure on the overall server market while low cost, high-capacity drives will bring about further price erosion in the storage market,” says Frank Gens, senior vice president of research at IDC.

Dell has already started its onslaught in the blade server market with it latest PowerEdge 1855. The vendor’s re-entry into the blade server market is a fair indication that the technology has gone mainstream. “The blade server market is going to be big in 2005 and after that. There are a lot of opportunities in the market place and we plan to exploit them,” says Jim McMahon, enterprise business manager for Dell.

Intel is paying special attention to Wimax (Worldwide Interoperability for Microwave Access) in 2005. The vendor claims Wimax, which due to the opportunities it creates in terms of leapfrogging to the latest information communications technology (ICT) infrastructure, has the potential to change the face of ICT in the region. The Middle East, Turkey and Africa regions were the fastest growing markets for Intel worldwide in 2004 and it hopes to maintain this level of growth in 2005.

“We will continue to focus on our key verticals in the enterprise arena, mainly the energy, education, finance and government sectors. On the client side, we intend to keep working closely with our fellow travelers to ensure that our latest desktop and mobility platforms are available in the region,” says Samir Al-Schamma, general manager for Intel GCC region.

“On the consumer front, we believe that 2005 will witness the real transformation, since the seeds were planted in 2004 and now the ecosystem is coming together: hardware vendors, software vendors and content providers,” he adds. Intel claims that one of the challenges it faces in the Middle East is the level of internet and PC penetration, however it plans to keep working with regional governments to overcome this impediment. ||**|||~||~||~|Security has been the underlying reason for IT investment in 2004 and this trend will continue in 2005 as enterprises pay renewed attention to the security of their IT infrastructure.

Datamonitor says the total enterprise security solutions market will reach approximately US$32 billion by 2007. The analyst house adds that enterprise security spending is still small in comparison to other areas and that there is still strong potential growth ahead within the market, particularly in areas such as security appliances and services, as well as in relatively immature markets such as intrusion prevention system (IPS) and security management.

Gartner says standardised security services suffer from low margins, but will experience a sound market growth of more than 11%. In addition to the market growth and related mobility requirements, legal conditions such as Basel II, EU directives and industry-specific regulations constitute a challenge for the region’s IT organisations.

Cisco Systems is also focusing on security. The networking giant will launch a wide rage of security solutions this year. Since security threats have shifted from individual networks to infrastructure, so too has Cisco’s approach to security.

“As organisations shift their focus to building information infrastructure that helps meet strategic objectives through business process re-engineering and optimisation, our intelligent networking solutions provide a roadmap and a foundation for a network that directly supports these new and increasingly business-driven objectives,” says Ghazi Attalah, general manager Cisco Systems Middle East.

Following a taxing 2004, Computer Associates (CA) is hoping for a stable 2005. The vendor’s 2005 roadmap for Middle East is about establishing its presence and raising the profile of its security products. “Our immediate priority is to build trust in the CA brand in the Arab world. We have over 450 customers in the region and we want to tell them that CA is here to stay,” says Ned Jaroudi, regional marketing director at CA, the Arab Countries.

“We think the opportunities for us are big across the board. 80% of the region’s businesses now fall within the SMB category and account for 37% of the Arab region’s IT spend. So it comes as no surprise that CA is targeting this segment.”

In the world of infrastructure software, systems vendors like IBM, HP, Sun and EMC will continue to acquire companies, large and small, to fill out their software portfolios and create a dynamic infrastructure platform.

Likewise, independent infrastructure software players like Microsoft and Novell will spend 2005 expanding their offerings through mergers, buyouts and alliances. According to IDC’s Gens, “the interesting question is: are these two communities — that have depended on each other for success—headed for showdown? And will Dell, which has stayed largely out of the software game, be forced to follow IBM, HP and the others?”

Microsoft is predicting unmatched growth in the ICT industry this year. The software giant believes that universities and technical training institutes need to provide content, teaching material and training to enable graduates in the region to acquire appropriate skills and become competitive in this incredibly lucrative sector.

“Education is another field we see great potential. Regional governments are now allocating huge budgets toward educational programs driven by their understanding of the importance of ICT in the education sector,” says Abdullatif Al Mulla, general manager for Microsoft South Gulf. “I believe it is definitely one of the most promising areas of IT in the region.”

In the US$1 billion application market, it will become clearer in 2005 that competition is moving away from developing “the killer app”. Instead, application software vendors like SAP, Oracle and middleware vendors including IBM and BEA will continue jockeying to define and own “the killer application platform”.

Gens says Microsoft, which has a foot in each camp and failed to close a merger with SAP in 2004, is likely to attempt an audacious buy in 2005 to strengthen its position in this critical battle.

Oracle is certain that a grid-based enterprise IT infrastructure is the next logical evolution in IT. Grid computing, which the vendor claims will help businesses save money, is gaining acceptance in the region.

“It is easy to understand the concept of grid and the year 2005 will see a much broader implementation of this cost-reducing technology,” says Ayman Abouseif, senior marketing director at Oracle MEA. Oracle is also upbeat about Linux and it says 2005 will see an increasing number of organisations using an open source platform.

The Enterprise resource planning (ERP) applications market is expected to reach US$36 billion by the end of 2008. This space will grow as horizontal and vertical vendors compete against one another to expand their share.Emerging forces such as open source ERP and new players like China Dot Com will also make an impact in 2005. They will help decide how ERP software will be delivered in the future.

“ERP apps will be big in 2005. Customers are seeking innovative solutions that won’t lock them into a proprietary platform.Combining applications and infrastructure technology provides customers with offerings that can help them solve their business challenges,” says Steve Mills, senior vice president and group executive at IBM Software Group.

Similarly, the highly fragmented data and information management software industry, according to IDC, will spend 2005 restructuring, with companies like Open Text, EMC/Documentation, Ascential and others driving consolidation to address businesses’ enormous information problems.

Emaar Properties IT arm Sahm Technologies is predicting that managed services will be the ‘next big thing’ this year and is preparing accordingly. The company believes that regional businesses have the financial resources and the willingness to adopt managed services.

“Managed services are starting to get a lot of acceptance in the region. The reason for this shift in the market place is because businesses are becoming sophisticated, there are better service level agreements (SLAs) in place and outsourced services are becoming less expensive,” says Arvind Bhatnagar, CEO of Sahm Technologies.

The company will launch new services and products and partner with international players this year in order to exploit new opportunities in the managed services space. Regional governments are paying close attention to managed services and professionalism. It is not all that apparent, but a lot of money is being spent on managed services, according to Bhatnagar.

“There are two things that need to be considered when talking about managed services and outsourcing. They are SLAs and quality of services. Who would not want a 24/7 service for all year round? I think outsourcing will take place in the region in a small way and then become big, just like the way it did in the US,” he adds. “The confidence and trust issue still exists, but over time things will change.”

Further consolidation in the telecommunications industry is inevitable in 2005, with regional governments pushing for deregulation of this sector. Most GCC nations want to join the World Trade Organisation (WTO) and part of the membership requirements include the opening or partial opening of certain markets, one of which is telecommunications. For this reason, most regional countries will either fully or partially deregulate their telco sector by the end of 2005.

Meanwhile, IDC says telcos and cable companies will continue their battle for dominance in the consumer market with the introduction of offerings that bundle wireless voice in with their “triple play” bundles of fixed voice, broadband internet and cable TV.

It also believes that voice-over-internet protocol (VoIP) will finally go mainstream this year with an acceleration of high volume cut-over deals by big enterprises and the large-scale delivery of mainstream consumer offerings announced by the incumbent carriers in 2004. Although the future of VoIP remains uncertain in the Middle East due to the region’s restrictive telecommunications legislation, business remain confident of its success in 2005 and beyond.

“The call center industry in the Middle East and Africa is expected to continue growing somewhere around 30% year-on-year while IP Telephony implementations in this region will more than double in 2005,” says Nidal Abou-Ltaif, managing director for Avaya Middle East &North Africa.” There are many benefits of using telephony over an IP network, such as savings on the cost of infrastructure and maintenance by only having one network for voice and data, besides the innovative new solutions that are possible with IP telephony.”

Wireless technology is also expected to take off in 2005. Vendors with broad wireless strategies will be best positioned to gain market share this year. With the arrival of voice over Wi-Fi (VoWi-Fi), convergence may have found its ‘killer application’.

“Our take is that wireless will be big this year. The technology is already there and we think the time has come for deployment as businesses in the region are starting to realise the benefits of having a wireless network,” says Sarah Morgan, product manager at Mitel Networks.

Soubhi Abdulkarim, IT manager of Aspire Sports Academy in Qatar, shares Morgan’s sentiments. He believes that despite the immaturity of some solutions wireless is becoming increasingly common in the enterprise arena and this trend will continue. “Wireless will be hot this year. Today’s networks do not just transmit text data. Voice and data are now becoming an integral part of any network design,” Abdulkarim explains.

Furthermore, the storage boom, which started in 2004, will continue in 2005. The total spending on storage software in 2003 went up by 32% in the Arab Gulf states, and similar or higher growth is expected for 2005.

“The storage market in the Middle East is booming. Middle East may be an emerging market, but it is starting to mature. Businesses are getting serious about storing their data,” says Mohammed Amin, general manager for EMC Middle East.

2005 will also witness a growth in storage area network (SAN). With businesses’ valuable data stored in a centralised bunker for instant access to their remote locations, companies should be safe against any external threats, however it is like putting all your eggs into one basket. What happens if data centres and disaster recovery (DR) sites are targeted? In these situations distributing the data across multiple sites is a more effective means of storage management.

“SANs are going to be big in 2005. Due to the events of 9/11, businesses are taking out time to think about the safety of their data. There is a huge requirement for disaster recovery and backup,” says John Bentley, sales director at HDS Middle East.

Finally, in the midst of all the upheaval in the IT industry, the platform for the tech boom of 2006 and beyond has been set, it is up to the Middle East’s major technology users such as the banking sector, oil& gas and manufacturing to find that niche and take advantage of what is available at their door step. ||**||

Arabian Business: why we're going behind a paywall

For all the latest tech news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Real news, real analysis and real insight have real value – especially at a time like this. Unlimited access ArabianBusiness.com can be unlocked for as little as $4.75 per month. Click here for more details.