"In 2002 the Israeli market will return to normal in its expenditures on technology," said Gideon Lopez, head of the research department of International Data Corporation (IDC) Israel, at a conference held by the company last week. Lopez compared his forecast for 2002 with the performance of the information technology (IT) market in 2000, when organizations spent particularly high sums on both hardware and software, and in 2001, which witnessed a sharp drop in expenditures for hardware, software and IT services.
Lopez explained that the forecast for 2002 is particularly important because of the deviation from the multi-year trend in 2001. "It is important to understand why there was a downturn in 2001 and when we will pull out of it," said Lopez, noting that the average growth rate for IT expenditures is about 3 percent. In 1995 the growth rate was 2.5 percent and in 2003 it is expected to reach 3.2 percent.
In 2001, the Israeli IT market had an estimated value of $3.2 billion. When compared to the growth of the gross domestic product (GDP) since 1995, the IT market growth rate is three times that of the GDP. About two weeks ago the Central Bureau of Statistics published figures indicating a 0.5 negative growth in Israel's GDP for 2001. Despite IDC's estimates that this would be reflected in 0 percent growth in IT expenditures, Lopez said that IDC now figures the IT market will register 10 percent negative growth for 2001.
This sharp drop in IT expenditures can be explained by a combination of two factors. "In 2000 many organizations discovered that budgets that had been allocated for crises caused by the Y2K bug were not utilized," said Lopez, "and these budgets were redirected to acquisitions. When 2001 arrived many of these same organizations realized that all their computers were up-to-date and they didn't need to buy any new hardware.
"In 2001 many organizations became skeptical about the future and wanted to see a return on their investment. Without proof, they did not spend money, thanks to the global economic crisis." Lopez added that the security situation in Israel has not caused any significant slowdown in the IT industry.
A breakdown of IT expenditures shows that the largest expenditure was on services. In 2001 the Israeli economy spent about $1.4 billion on IT services, compared to $600 million in 1994. "The fact that the Israeli market uses more services and less hardware and software indicates the maturity of the market," said Lopez.
One worrying figure that Lopez presented shows that 0.25 of all the organizations in Israel are responsible for over 63 percent of the IT expenditures in the country. "Israel is characterized by a market of giants," he said. "Huge organizations are computerized to their eyebrows, while small and medium organizations are under-computerized."
Lopez feels that this figure indicates a business opportunity for companies interested in providing IT services to small and medium organizations. The computerization of the organizational sector in Israel includes some 745,000 desktop computers, some 110,000 portable computers and about 5,700 international communication hookups.
About 90,000 organizations are hooked up to the Internet, 26,000 of which operate a Web site. All told, the average investment in IT per employee is an estimated $1,600 per year. Communications companies and financial institutions lead in investment per employee, spending some $8,000 per employee per year, and the education sector is at the bottom of the list, with an investment of less than $300 per employee per year.
IDC Israel's forecast for the next few years shows that 2002 will be a year of recuperation and that in 2003 the IT market will return to normal growth in IT expenditures.
Nisso Cohen, the CEO of IDC Israel, noted that world IDC's forecasts call for a recovery of the IT market in the United States from the beginning of 2002, and that forecasts indicating no growth in the American GDP until the end of the third quarter are exaggerated. Lopez said that the entry of new technologies and the obsolescence of the existing equipment will return the server market to growth in 2002 and the portable computer market will bring growth back to the personal computer market.
Some analysts have predicted that Windows XP, Microsoft's new operating system, would put the PC software and hardware markets back on the growth track, but Cohen feels it will not create the growth in hardware sales that the launching of Windows 95 did. Cohen added that IDC feels that Microsoft's attempt to arouse interest in new Internet services based on the company's dot.net strategy will be met with indifference.
Lopez explained that the forecast for 2002 is particularly important because of the deviation from the multi-year trend in 2001. "It is important to understand why there was a downturn in 2001 and when we will pull out of it," said Lopez, noting that the average growth rate for IT expenditures is about 3 percent. In 1995 the growth rate was 2.5 percent and in 2003 it is expected to reach 3.2 percent.
In 2001, the Israeli IT market had an estimated value of $3.2 billion. When compared to the growth of the gross domestic product (GDP) since 1995, the IT market growth rate is three times that of the GDP. About two weeks ago the Central Bureau of Statistics published figures indicating a 0.5 negative growth in Israel's GDP for 2001. Despite IDC's estimates that this would be reflected in 0 percent growth in IT expenditures, Lopez said that IDC now figures the IT market will register 10 percent negative growth for 2001.
This sharp drop in IT expenditures can be explained by a combination of two factors. "In 2000 many organizations discovered that budgets that had been allocated for crises caused by the Y2K bug were not utilized," said Lopez, "and these budgets were redirected to acquisitions. When 2001 arrived many of these same organizations realized that all their computers were up-to-date and they didn't need to buy any new hardware.
"In 2001 many organizations became skeptical about the future and wanted to see a return on their investment. Without proof, they did not spend money, thanks to the global economic crisis." Lopez added that the security situation in Israel has not caused any significant slowdown in the IT industry.
A breakdown of IT expenditures shows that the largest expenditure was on services. In 2001 the Israeli economy spent about $1.4 billion on IT services, compared to $600 million in 1994. "The fact that the Israeli market uses more services and less hardware and software indicates the maturity of the market," said Lopez.
One worrying figure that Lopez presented shows that 0.25 of all the organizations in Israel are responsible for over 63 percent of the IT expenditures in the country. "Israel is characterized by a market of giants," he said. "Huge organizations are computerized to their eyebrows, while small and medium organizations are under-computerized."
Lopez feels that this figure indicates a business opportunity for companies interested in providing IT services to small and medium organizations. The computerization of the organizational sector in Israel includes some 745,000 desktop computers, some 110,000 portable computers and about 5,700 international communication hookups.
About 90,000 organizations are hooked up to the Internet, 26,000 of which operate a Web site. All told, the average investment in IT per employee is an estimated $1,600 per year. Communications companies and financial institutions lead in investment per employee, spending some $8,000 per employee per year, and the education sector is at the bottom of the list, with an investment of less than $300 per employee per year.
IDC Israel's forecast for the next few years shows that 2002 will be a year of recuperation and that in 2003 the IT market will return to normal growth in IT expenditures.
Nisso Cohen, the CEO of IDC Israel, noted that world IDC's forecasts call for a recovery of the IT market in the United States from the beginning of 2002, and that forecasts indicating no growth in the American GDP until the end of the third quarter are exaggerated. Lopez said that the entry of new technologies and the obsolescence of the existing equipment will return the server market to growth in 2002 and the portable computer market will bring growth back to the personal computer market.
Some analysts have predicted that Windows XP, Microsoft's new operating system, would put the PC software and hardware markets back on the growth track, but Cohen feels it will not create the growth in hardware sales that the launching of Windows 95 did. Cohen added that IDC feels that Microsoft's attempt to arouse interest in new Internet services based on the company's dot.net strategy will be met with indifference.
