The UK IT market is the largest in Europe and, despite fiscal retrenchment, is projected to grow at a CAGR of 5% over the 2011-2015 period. The overall outlook for UK IT spending in 2011 is one of cautious recovery, which lags that of some other major European markets but there should be faster growth in some verticals such as financial services.
BMI projects the addressable domestic market for IT products and services to reach US$84.6bn in 2011. In Q111, the UK PC market contracted sharply, following a slowdown in the final quarter of 2010. The UK IT market recovery in 2010 was relatively anaemic, suggesting uncertainty about the strength of the UK economic recovery and steep public sector budget cuts.
The coalition government has launched a drive to achieve significant savings in spending on IT projects is renegotiating a number of existing contracts. However, IT investments in the UK’s large financial services sector expected to increase this year.
Industry Developments
In February 2011, the UK Cabinet Office estimated that around GBP1bn in savings had been achieved as a result of changes in IT procurement procedures announced in May 2010. According to the Cabinet Office, the gross savings had resulted from a curtailment of 229 IT projects across government.
In March 2011, the UK government said that it was raising the threshold for government IT projects to require central approval to GBP5mn from GBP1mn. Previously, any government IT project with a value of more than GBP1mn had to be approved by the Treasury. All projects are still required to meet requirements for common infrastructure and open standards.
However, the government’s efficiency drive will also be a source of opportunities for IT suppliers as more public sector bodies look to utilise digital means to deliver services efficiently. As the new government considers how to achieve savings in public sector IT expenditure, proposals have been advanced for a ‘G-Cloud’, which could support government IT needs from pooled datacentres to email, as well as a wide range of other applications.
Competitive Landscape In Q410, Capgemini reported that its UK Consulting revenues were down 27% year-on-year (y-o-y), as a result of the crisis in the public sector. The public sector accounts for between 12% and 15% of Capgemini’s UK revenues. The company expected new business opportunities to come in 2011, following a stabilisation in Q410, and outsourcing demand was reported to be ‘levelling out.’
In Q111, Atos Origin also reported that systems integration revenues had stabilised in the UK, following earlier declines. In September 2010, Atos Origin became one of the first IT services vendors to sign an agreement to restart its commercial activity with the UK government following the moratorium on new IT projects.
In the second half of 2010, the consumer notebook market weakened amid continued weak consumer sentiment. Acer saw its shipments drop by a double-digit y-o-y factor in Q410, compared with the same period of 2009, which resulted in it losing first place to Hewlett-Packard (HP).
Computer Sales
BMI forecasts the UK’s addressable computer hardware market will be worth around $20.7bn in 2011, up from an estimated US$19.9bn in 2010. Total PC revenues including notebooks and desktops are forecast at US$16.8bn and are projected to rise to US$20.4bn by 2015 at a CAGR of 5%.
UK PC shipments were down year-on-year in the first quarter of 2011 after reporting negative growth in the final quarter of 2010. The market downturn was attributed to concerns about the pace of the UK economic recovery, as well as the popularity of rival devices such as tablets. Tough government austerity measures are expected to restrain UK PC demand in 2011.
Software
In 2011, UK market software sales are projected by BMI at US$12.1bn and, despite the continuing climate of public and private sector budget constraints, revenues are expected to rise to US$14.7bn in 2015. The software CAGR for 2011-2015 should be in the region of %.
Businesses will remain cautious and the downturn may have had a lasting influence on the software market by encouraging adoption of SaaS. UK spending on cloud computing could double by 2014, with demand not only for business, but also for consumer applications such as those offered by Google. The global supply chain environment has become more complex for many UK companies over the past couple of years and this may be a driver of investment.
Services
UK IT services spending is forecast to reach around US$53.4bn in 2011, up from US$51.8bn in 2010. The economic crisis had a mixed impact on services spending in 2010, with most vendors reporting a sharp drop in public sector contracts, while there were signs of a revival in private sector IT services spending.
As of October 2010, around 300 public sector contracts were estimated to be under government review. Outsourcing is one of the main drivers of the IT services segment and its share of the IT market is likely to grow over BMI’s forecast period as more organisations start business process outsourcing (BPO) and begin to outsource application functions.
E-Readiness
The UK has historically benefited from significant investments in network expansion and upgrades. Furthermore, various levels of network infrastructure-sharing agreements have seen mobile services cover over 90% of the population. The broadband sector has also become more competitive, leading to investments in faster networks and better pricing for subscribers.
The telecoms regulator Ofcom has proposed plans that will give alternative broadband providers access to British Telecom (BT)’s fibre cables. BT had earlier announced plans to allow its rivals to lay their own fibre cables in its ducts. We expect this development to boost the uptake of DSL-based broadband services, leading to a slower rate of decline in fixed-line. We expect strong growth to continue in advanced services such as fibre-to-the-home (FTTH), mobile broadband and pay-TV products.
Industry Developments
In its Comprehensive Spending Review, delivered in October 2010, the coalition government provided more details of its plans to make savings from public sector IT contracts over the next four years. The government has set a target of GBP800mn saving from ‘de-scoping’ major IT contracts, with IT spending being subject to a ‘tough new efficiency regime’. According to the Cabinet Office, the GBP800mn figure excluded an envisioned further GBP1bn worth of IT projects that will be scaled back or cut outright.
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