Consolidation inevitable as competition heats up in UAE IT services market, says IDC

According to a new IDC study, end users in the UAE are moving away from the basics of implementation and support to customization and outsourcing. Moreover, organizations are warming to service models because their IT infrastructure has been growing increasingly complex, necessitating highly trained IT specialists and contractors. As a result, IDC expects the UAE IT services market to grow consistently at between 11% and 12% for the foreseeable future, eventually reaching more than $535 million in 2009.

Competition intensified among IT services vendors in the UAE last year. Local players dominated the scene, constituting the top three vendors and seven of the top ten. The leading vendors included Mideast Data Systems, Emirates Computers, Computer Network Systems, Mercator, and GBM. However, no one vendor controlled the market, with the top ten only accounting for 54.2% of total revenue. "Things have really heated up between the main IT services providers this last year and are going to get hotter this year," says Philip van Heerden. "Government-owned firms have entered the fray, often winning key government contracts and reducing the available business for private vendors. The time is ripe for consolidation."

Applications consulting and customization was the largest single IT services segment in the UAE in 2004. Hardware support and installation was a close second and systems integration third. These foundation markets together made up just over half of the total IT services revenue last year. Of these three, systems integration grew the fastest, with revenue jumping up by more than 18% last year. "But the real barometer of maturity is the outsourcing segment," says van Heerden. "And outsourcing was the sweet spot last year in terms of growth. To take advantage of this, providers will need to re-invent themselves almost continuously, demonstrating clear specializations that appeal to potential clients. While larger firms may aim to be one-stop shops, smaller firms will are better off finding a niche in which they can excel."

Local government was the largest single vertical sector in the UAE IT services market last year. Banking was second and telecommunications was third, a step ahead of transport. Together these four verticals were responsible for 45.5% of spending on IT services, the relatively modest number pointing to the diversification of the UAE economy over the last few years.
Nevertheless, these top-spending verticals will likely be the most dynamic over the next couple years. "eGovernment is being pushed hard at all levels," says van Heerden, "financial institutions have a plethora of regulations and complex IT that will require more services, telecoms are privatizing, and a new airline is in town. Although competition for IT services customers will be fierce, there will be lots of opportunities."

IDC's UAE IT Services 2005-2009 Forecast and 2004 Vendor Shares presents the IT services industry in the United Arab Emirates and forecasts expenditure on IT services through 2009. The study contains market size, vendor market shares, and forecasts for thirteen foundation market categories. The study ranks the top ten IT services providers by their 2004 revenue, and includes a profile of their IT services portfolio, their presence in individual vertical markets, and their largest contracts. The top five services providers for each of IDC's foundation market categories are also provided. The study answers the following questions: What are IDC's predictions for spending on IT services and what are the assumptions for forecast numbers? What impact will these have on the market forecasts? What are the new trends in IT services delivery, such as outsourcing and business services? Who are the market leaders based on services revenue and what are their strengths, weaknesses, and str ategies for the future?