European Enterprises Taking a Breather From Large IT Projects, According to the Yankee Group.

Business Editors

BOSTON--(BUSINESS WIRE)--Feb. 11, 2003

During the 1990s, European corporations invested heavily in Y2K, euro conversion and dot-com projects. But a Yankee Group report, "European Systems Integrators Change Tactics as IT Climate Gets Tougher," finds that with no new deadline in sight--apart from the Basel II accord for financial services--European enterprises are for the most part inclined to make do with what they have.

To add to the gloom, the Yankee Group sees no sign of recovery for 2003. IT's traditional biggest spenders--financial services and telecom firms--are likely to continue cutting spending. All systems integrators interviewed for this report are signaling decreasing prices and a poor outlook.

This change of behavior among buyers has led systems integrators to return to a more balanced revenue mix of recurring revenue (long-term outsourcing contracts) and non-recurring, project-based revenue.

"Challenges remain for systems integrators in Europe due to intense pricing pressure, low margins, commoditization and industrialization of services", says Graham Finnie, Yankee Group Networked Business Strategies Europe associate consultant. "Access to capital and cash will be key for survival."

Another consequence of current pressures is a rising interest over the last 6 months in offshore development and sourcing, where companies and systems integrators can anticipate cost savings of one-third or more. "This option is attractive for low-margin activities such as infrastructure services," says Finnie.

Rising spending by governments and other public bodies provides one ray of hope, especially for those companies that have a strong existing position in this area. "E-government initiatives are boosting IT spending right across the public sector," says Finnie, "and indigenous European players such as Indra Sistemas and Steria are well-positioned to benefit."

NOTE TO EDITORS

For interviews, contact Graham Finnie, [e-mail].

THE YANKEE GROUP (www.yankeegroup.com)

The Yankee Group is a global leader in technology research and consulting. Our customers, which include technology vendors and users, benefit from our accurate, reliable, and trusted research, consulting, and personalized one-to-one client interaction covering communications and IT products and services. Now in our fourth decade, the company is headquartered in Boston and maintains offices throughout North America, Europe, Latin America, and the Pacific Rim.