The local IT sector is in for a tough year, as slowing economic growth and a shift to cloud computing push gains to levels below those expected internationally.
Last year, the South African IT sector grew at more than two times gross domestic product, hitting $12.7 billion - or almost R100 billion. However, this year expected gains are only set to come in at 4.9%, 2.5 percentage points lower than 2011's figures.
Globally, the IT sector should grow at 5.4%, after improving 5.2% in 2011, to total $1.8 trillion - or R14 trillion - according to figures from IDC. The research house estimates $13.4 billion was spent on IT, excluding telecoms, in SA during 2010.
Among the reasons behind the slow down in growth is a shift towards cloud computing, which is hampering hardware sales and affecting gains across the sector. In addition, SA's economy is expected to slow to 2.3% this year, after growing at 3.1% in 2011, which is weighing on sales.
While the 7.4% growth seen last year was a decline in percentage terms on the pervious year's growth of 8.7%, 2010's gains were off a low base as investment contracted 3.7% during 2009 and spending also benefited from investments because of the Fifa Soccer World Cup.
Dragging down
The research company expects a decline in server sales, especially in the high-end server space, as end-users opt for virtualisation servers. IDC also anticipates a slowdown in desktop computers as people opt for notebooks, because of a preference for mobility.
Service and software will drive the sector, although this will not make up for the slowdown in hardware sales. Services, which gained 8.7% last year, will grow at 8.6% this year. Globally, services grew at 3.5%, which will improve marginally to 3.7% in 2012.
Locally, last year, software grew 10.1% over 2010, a figure that will slow to 9.7%. Internationally, software gained 5.7% in 2011, and will improve to 6% this year, according to IDC's figures.
Marsay explains there is a “massive” uptake in business analytics applications, which is driving the software environment. Managed and hosted services and, as an extension, cloud services, are driving the services market, she adds.
Overall, virtualisation and cloud are big drivers for much IT spending this year, says Marsay. However, there are concerns around the return on investment on some of the investments already made into cloud, she says.
“The problem in this is that many companies have taken a short-term view in adopting cloud” and are not seeing long-term benefits such as savings and agility, says Marsay.
Strategy shift
Business Connexion deputy CEO Vanessa Olver says traditional models are under threat and the sector is shifting to growth areas, such as services. She adds that the growth figures are in line with SA's expected gross domestic product (GDP) gains.
According to the IDC, economic growth will slow to 2.3% this year, from 3.1% last year. From 2013, GDP is anticipated to pick up again, improving to 3.7%. The research house anticipates that IT spending locally will pick up again in 2013, moving into the 6.3% range.
Olver adds the slowdown in spending goes hand-in-hand with decreasing margins, despite volume improvements. She says this is something BCX has experienced.
In addition, there has also been a shift in the decision-making process within the local IT sector as CFOs lead technology investment strategies in 45% of companies, Olver points out. She adds that the financial officer is responsible for approving 26% of all IT investments.
“The fundamental change is that we are now in a demand market where, in the past, it was a supply market,” says Olver. She adds there is more emphasis on business and less purely on the capability of new technology for the sake of technology.
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