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IT services growing - thanks to outsourcing
So says recent report from Gartner

By Ed Frauenheim

Published: Thursday 24 June 2004

Worldwide spending on information technology services hit $569bn in 2003, up 6.2 per cent from 2002, according to a recent report from research firm Gartner.

IT services range from hardware support contracts to systems integration work to outsourcing - which is when a company farms out jobs such as application development or help desk support. Outsourcing, which can be done within the same country or involve sending work to another nation, is the main engine for IT services right now, said Gartner analyst Kathryn Hale.

"Through 2004, outsourcing will continue to drive the growth in the worldwide IT services market, with IT management and process management growing faster than consulting services and development and integration services," Hale said in a statement.

Offshore outsourcing has become a controversial practice in the past year or so, with debate focused in part on the scale of offshoring activities. Gartner on Monday said, "Accelerating activity in offshore outsourcing... contributed modestly to the overall growth" in IT services spending.

Gartner also said the revenue of vendors based in India - a flashpoint for offshoring fears - vendors grew 29 per cent, to 1.4 per cent of the total market.

IBM retained its crown as IT services king. Its market share held steady at 7.5 per cent, Gartner said. EDS and Fujitsu remained in second and third places, respectively. In fourth place, Computer Services Corp. leapfrogged Hewlett-Packard. HP, which recently merged its services and high-end computing divisions, fell a space to fifth this year. Accenture remained sixth.

Of these six players, only IBM and Fujitsu grew as fast as or faster than the overall market.

One specific area in which HP has lost ground is in storage services, according to Gartner. These services, which include data storage and hardware maintenance, as well as management services, totaled $22.1bn last year, up about 6.3 per cent from 2002. A separate report from Gartner this week said HP had 6 per cent of the storage services market in 2003. That represented a tie for second place among storage hardware vendors with EMC, while IBM ranked first with 21 per cent.

Back in 2001, though, HP and Compaq Computer together accounted for 7 per cent of worldwide storage services revenue, according to a 2002 Gartner report. IBM had 15 per cent, and EMC had 4 per cent.

Gartner analyst Adam Couture suggested that one reason the combined HP and Compaq lost share was that the companies had been selling to the same customers. Another possible factor, he said, is management change in HP's storage services operations. "During a change of leadership, companies can lose focus," he said.

HP yesterday disputed the notion that it has lost significant market share, if any, in storage services. Thomas Goepel, HP worldwide portfolio manager for storage services, said Gartner's numbers do not capture storage-related services revenue from large HP outsourcing deals, such as one with Procter & Gamble.

Goepel acknowledged that the management structure of HP storage services has changed, with the company integrating storage services into its overall services unit last year. The purpose, he said, was to help HP better address customers' business problems.

Ed Frauenheim writes for CNET News.com