Gartner Says Worldwide IT Services Revenue Grew 6.2 Percent in 2003; Revenue of India-Based Vendors Grew 29 Percent, to 1.4 Percent of Total Market.

STAMFORD, Conn. -- The market for worldwide IT services grew 6.2 percent to $569 billion in 2003, up from $536 billion in 2002, according to preliminary results from Gartner, Inc. Accelerating activity in offshore outsourcing, in which companies shift jobs across national borders, contributed modestly to the overall growth.

U.S.-based vendors continued to lead the worldwide IT services market, attracting 59 percent of total spending. IBM remained the largest competitor, with revenue rising 6.2 percent to $42.6 billion, and its market share unchanged at 7.5 percent (see Table 1).

India-based vendors represented a small segment of the worldwide market, with 1.4 percent of total revenues. However, their revenues collectively increased 29 percent, compared with only 4 percent growth among U.S.-based vendors. India-based vendors depended almost entirely on exports, with 92 percent of their revenues coming from customers outside India and only 8 percent within India.

"Vendors based in the United States and India have been most successful at driving sales outside their native regions of North America and Asia/Pacific," said Kathryn Hale, principal analyst for Gartner's worldwide IT services group, based in San Jose, California. "Vendors based in other countries tend to sell primarily in their own country, then expand within their local region. As a result, vendors based in the United States and India are more experienced in global sourcing and best positioned for global expansion." Global sourcing is another term for offshore outsourcing.

"The gradual merging of the Indian economy with the global economy is opening up the Indian market for international competition," said Ravindra Data, principal analyst for Gartner IT services research in India, based in Mumbai, India. "This is encouraging enterprises in India to invest in technology and global best practices, further driving demand for IT services here in India."

Table 1

Top 10 2003 Worldwide IT Services Vendors by Revenue (Millions of
U.S. Dollars)

                                2003      2003    2002     2002 Growth
Company                        Revenue   Market  Revenue  Market  (%)
                                         Share            Share
                                           (%)              (%)
----------------------------------------------------------------------
IBM                            42,635.0    7.5  40,139.0    7.5   6.2
EDS                            21,102.0    3.7  20,979.0    3.9   0.6
Fujitsu                        16,122.9    2.8  14,482.9    2.7  11.3
Computer Sciences (CSC)        12,679.0    2.2  12,122.8    2.2   4.6
Hewlett-Packard                12,546.0    2.2  12,211.0    2.3   2.7
Accenture                      12,150.0    2.1  11,514.0    2.1   5.5
Lockheed Martin                 7,568.0    1.3   7,143.0    1.3   5.9
Northrop Grumman                7,392.0    1.3   6,700.0    1.2  10.3
Automatic Data Processing       7,220.0    1.3   7,043.0    1.3   2.5
Hitachi                         7,133.8    1.3   6,408.0    1.2  11.3
Others                        422,454.1   74.2 396,917.1   74.1   6.4
Total Market                  569,002.8  100.0 535,659.8  100.0   6.2
----------------------------------------------------------------------

Source: Gartner Dataquest (June 2004)

The strengthening of many international currencies against the U.S. dollar had a significant impact on revenue results in 2003. "Although the growth of the services industry improved compared with the decline of 0.3 percent in 2002, growth rates were inflated by changes in the exchange rate of the U.S. dollar," Ms. Hale said. "Vendors operating extensively outside the United States reported inflated growth after converting local currencies into dollars."

EMEA

The effect of the weak dollar is evident in the growth rates of different regions in 2003. North America grew only 1.1 percent, while Western Europe reported the highest growth at 11.8 percent. However, measured in local currencies, IT services spending in many Western European countries actually declined, affecting the growth rate of the overall Europe, Middle East and Africa (EMEA) region. Based on euros, the EMEA IT services market declined 4.8 percent in 2003.

"Annuity-based services, primarily IT management and process management, continued to drive the EMEA IT services market, while project-based work (consulting and systems integration) recorded the slowest growth in the market as discretionary budgets continued to be cut," said Robert De Souza, principal analyst for Gartner's IT services research in Europe, based outside London in Egham.

IBM remained the leader in EMEA IT services, with its $14.6 billion in revenues representing 11.6 percent of total revenues in the region. EDS held onto the second position, although its IT services revenue was less than half that of IBM in the region.

APAC

IT services revenue in Asia/Pacific grew 10.3 percent in 2003. Much of the growth occurred in the latter half of 2003 as the global economy gradually improved and Asian countries recovered from the spring outbreak of Severe Acute Respiratory Syndrome (SARS). However, the biggest contributor to growth was the strengthening of local currencies against the U.S. dollar.

"For example, revenues of IT service providers in Australia, Singapore and Indonesia grew in 2003 in U.S. dollar terms," said Twiggy Lo, forecasting analyst for Gartner's IT services research in Asia/Pacific, based in Hong Kong. "But, when viewed in local currencies, revenues actually declined."

In China, the IT services market grew 6.8 percent, with revenue reaching $3.7 billion. The Chinese IT services industry experienced consolidation in the local market last year.

"Merger and acquisition activities by local service providers, such as Legend, Digital China, Neusoft and UF Soft, continued in 2003 as a quick way to build solution sets in end-to-end services," said Jacqueline Heng, principal analyst for Gartner's IT services research in Asia/Pacific, based in Singapore. "Global service providers are still educating the marketplace and, for some providers, this is starting to pay off. Enterprises in certain industries, such as telecommunications and finance, are becoming more sophisticated in their IT services demands."

The growth rate in Japan was 11.3 percent in 2003 but, as in other regions outside North America, much of the increase was currency related. In yen terms, revenue growth in Japan was 3.5 percent. "Although there were some signs of economic recovery toward the end of 2003, the full-fledged rebound of IT services did not occur last year," said Rika Narisawa, principal analyst for Gartner's IT services research, based in Tokyo.

On a worldwide basis, IT management services and process management services remained the IT services industry's best-performing segments in 2003, with growth rates of 10 percent and 9.3 percent, respectively. Gartner analysts attributed the relatively strong growth in these segments to the continuing appeal among companies buying IT services to control costs. Vendors offering consulting services had another tough year, growing only 0.1 percent, as customers continued to rule out large or technically difficult projects.

"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," Ms. Hale said. "Outsourcing activity transfers IT spending from internal resources to external services. In addition, business process outsourcing (BPO) often transfers internal spending that was never in the IT budget to external providers. One example is human resources benefits."

"All of this creates market growth in IT services, while leaving the overall IT budget little changed in a period when we expect enterprises will continue to maintain tight controls on IT spending," she said.

Additional information is available through MarketView databases in Gartner IT Services cluster products. These databases provide vendor revenue, market share and end-user market size for IT services by region. These preliminary statistics have been developed using high-level secondary research and modeling to provide timely estimates of previous year results. Final market share statistics will be available to cluster clients at a later date. More information on the IT services industry is available on the IT Services & Outsourcing Focus Area on Gartner's Web site at http://www3.gartner.com/research/focus_areas/asset_48263.jsp.

About Gartner

Gartner, Inc. (NYSE: IT and ITB) is the leading provider of research and analysis on the global information technology industry. Gartner serves more than 10,000 clients, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community. The Company focuses on delivering objective, in-depth analysis and actionable advice to enable clients to make more informed business and technology decisions. The Company's businesses consist of Gartner Intelligence, research and events for IT professionals; Gartner Executive Programs, membership programs and peer networking services; and Gartner Consulting, customized engagements with a specific emphasis on outsourcing and IT management. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has more than 3,500 associates, including approximately 1,000 research analysts and consultants, in more than 75 locations worldwide. For more information, visit www.gartner.com.