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IT services firms should be ‘boring and profitable’

UK growth dips under 10%

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Sales in the UK IT services and software market grew less than ten per cent last year, according to a report out this week.

The Ovum Holway report estimates revenue growth was 9.5 per cent for 2000, compared to 25 per cent in 1998. This is the first time growth has dropped below ten per cent since the recession of the early 1990s. Sector profits plummeted 86 per cent during the year.

The report forecast more profit warnings for the year and growth of under ten per cent. For 2002 to 2004 it forecasts "very modest increases".

"The Y2K hangover, combined with the bursting of the Internet bubble, created a period of 'reflection' for many users," it states.

"Latterly problems hitting both the telco and financial services sectors have seriously affected growth prospects for the UK software and IT services sector."

IT analyst Richard Holway described 2000 as "the most turbulent period ever for the sector".

"The volatility has caused great damage but I am heartened that sanity does seem to be returning both to the market in general and valuations in particular," he said.

Certain services suppliers to the IT market, such as IBM Global Services and EDS, did well during the year thanks to the increased move to outsourcing as companies scrambled to cut costs.

In addition, Anthony Miller, an analyst at Ovum Holway, pointed out that most industries would be more than happy to have a growth rate of ten per cent.

"This is still a growing industry," said Miller. "It's a matter of re-setting expectations."

Holway added: "The best outlook is for those companies proud to be both boring and profitable - two attributes which clearly went out of fashion in 1999 and 2000."

The Holway report is available on the Ovum Holway Website. ®

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