Thursday, 2 April 2009

IT Forecasts – Holway’s Rant

If you are a Software or IT Services supplier, I strongly recommend that you read Richard Holway’s article today, where (unlike many other optimistic forecasters) he forecasts negative growth for the UK SITS sector in 2009 with no return to positive growth until 2010.

From the conversations that I’ve had with a number of software suppliers, I have to agree with his views for the general software and IT services (SITS) market, although I sense that the downwards curve for SITS companies working in the Public Sector market will be some 12-18 months behind the decline being suffered by suppliers to the private sector.

As I see it, many public sector software suppliers are currently living off orders won over previous years, with new business being hard to find. They are managing their cost bases to reflect their declining order backlog and, in many cases, do not appear to be unduly worried about the future – with the new financial year about to start, they believe that 2009-10 will produce as much business as 2008-09.

As I’ve said
before, this may be true in some specific areas (e.g. in Social Services, Housing and, probably, Education), but in other areas my discussions with potential customers have shown an increase in the “if it ain’t broken, don’t fix it” attitude. Also, with increased requirements for information and transactions to be made available electronically, I detect a much stronger move to bringing such services work back in-house, rather than contracting it out.

What could be worse for public sector software suppliers is that 2010 will (almost certainly) be a General Election year, with June 2010 being pencilled in for the actual election. Historically, this has meant that procurement processes and their decisions, typically kicked off early in the new financial year, will now be delayed until at least summer 2010 and, I believe in many cases, potentially through to the following 2011-12 financial year – with organisations waiting to see what financial constraints the new government will be imposing.

So - 2009-10 will be a tough, but manageable year for those suppliers who have order books and good recurring revenues to live off, whilst 2010-11 looks like it could be one of the worst years for public sector software suppliers, with any recovery delayed until 2012 at the earliest......

P.S. For me, the companies I’ve been associated with have always suffered from a recession in a year ending in one – starting with 1971 which saw me made redundant (by Fraser Williams) before I even started with them. We survived 1981 in IAL Gemini on the back of our niche applications, and fortunately Systemsolve was acquired by Radius just before the 1991 recession hit. 2001 was our last bad year, and it looks as if 2011 could continue the trend .....

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