PracticeConsultingIT sector ‘flat but stable’ says E&Y

IT sector 'flat but stable' says E&Y

Corporate IT budgets are still tight, with the principal areas driving new investment focusing on outsourcing, public sector projects and IT security, according to a study by Ernst & Young.

Link: IT spending set to bounce back

The latest Technology Insights report from Ernst and Young highlights a flat but stable environment for IT investments, with senior IT industry executives unconvinced of a rebound in activity until the end of 2004 at the earliest.

The study is based on in-depth interviews with 14 senior figures from the UK’s IT industry including directors from Microsoft, Oracle and BT. It found that continuing low levels of activity across the IT sector are reshaping the industry as customers remain focused on getting a quick and demonstrable return on investment.

The pressure is forcing smaller suppliers to partner with larger implementers or face being frozen out of major contracts.

The public sector, meanwhile, is increasingly active but lead times are long, tender lists short and procurement processes tortuous.

Nick Powell, technology sector leader at Ernst and Young, said that despite pockets of activity, the opportunities were not comparable to the boom in IT spending, particularly by telecoms and financial services companies, three or four years ago.

‘There’s still real innovation at the small end of the market but everyone’s mindset has changed. People want more value and more volume for their money,’ Powell said.

But while the study shows some optimism for established IT suppliers, funding for tech start ups is tight. ‘If you have a product ready for market and interested customers it is still worth looking for funding but you have to have a strong product and a niche market,’ Powell said.

Matthew Mead, a director of venture capital company 3i Technology Group, said: ‘The later stage deals are getting competitive again but the funding model and the dynamics have changed. People aren’t funding the high cash burn companies that are some way away from generating revenue.

‘Sitting on a runaway train is very exciting but eventually you know it’s going to hit the buffers,’ Powell added. ‘I hope that next time it happens, I’ll know when to get off.’

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