FT.com site; Dec 15, 2004
By Andrew Baxter, John Blau, Alan Cane, Annie Counsell, Khozem Merchant, Maija Pesola and Stephen Pritchard.
At the end of another challenging year in the enterprise IT market, how are things looking for 2005? To answer this, FT-IT writers have gone back to some of the chief executives who sat 'In the CEO's chair' this year and asked them a range of questions. The answers were broadly or cautiously optimistic, from companies that are both vendors of enterprise IT and telecoms products and users. One thing seems certain: the enterprise IT markets will remain a place where return on investment and value for money remain a top priority.
Carol Bartz of Autodesk:
The chief executive of the design automation software company answers a resounding yes when asked whether she is feeling more confident now than a year ago. "It is becoming ever clearer as companies come out of tough times that they are focusing on productivity, efficiency and profitability," she says. "One way to do this is to get your products to market more quickly - especially if growth is slowing."
Ms Bartz expects the manufacturing sector to continue to be very good for Autodesk next year, as companies realise that the globalisation of resources, workforce and the supply chain have changed their markets forever. Engineering, architectural and construction companies are also requiring global solutions - "they don't keep to their own backyards any more unless thay want to stay a certain size," she says.
As a customer for enterprise IT, Autodesk will continue to adopt the same stance with its suppliers next year as its own customers do. "I really push on my IT directors and vice-presidents to ensure that any technology investment is going to work, and we won't have to wait two years (to see any results)," says Ms Bartz. Having said that, she does think the overall enterprise IT market will improve next year in the US now that the 2004 presidential elections are over and people have become more settled about the continuing war in Iraq.
Along with some other chief executives, Ms Bartz is looking for "better and better wireless anything" next year. "I can't get along without as much information as possible coming to me wirelessly," she says. Progress in the US has been too slow in this respect, she says, compared with other countries.
Bernd Bischoff of Fujitsu Siemens Computers:
The chief executive of the major European computing group is broadly optimistic about the future, citing the company's strong growth in revenues and profit before tax: "Going into 2005, we are confident that we will achieve our stated goal of 5 per cent revenue growth (constant exchange rate) in the current financial year". This is despite a tough global environment with a weak dollar, high oil prices and slow growth in some European economies including Germany: "But I believe if you have something that adds value to a customer's business, they will buy it".
The principal challenge will be to provide customers with equipment and services which deliver results immediately: "The days are gone when IT managers can be convinced to invest now to save for the future," he says. Customers will not invest in IT for IT's sake. We have to prove not just the value but the value-add".
The profits needed for innovation, however, are threatened by market pressure: "There is always someone willing to sell at a loss." The company is therefore concentrating on profitable business generated by its mobile workforce initiative and by a new focus on the data centre that should see the outsourcing trend of earlier years reversed.
He expects to see new levels of virtualisation, automation and standardisation in the data centre, which should lead to increased productivity. And outsourcing will decline: "People are simply not convinced that outsourcing their business critical activities is a smart decision and at Fujitsu Siemens we agree with them." He thinks that developing the business practices and the technology for successful outsourcing could take up to 10 years.
Michael Critelli of Pitney Bowes:
The chief executive of the US-based mail systems and document management group says things are going well, after a year that has seen hiccups in its traditional US franking machine business - at least for medium and large companies - offset by a strong year in the SME market, in payments solutions and on the international side.
Next year Pitney Bowes will continue to plug away at challenges in the European market, where Mr Critelli believes some postal authorities are showing "a lack of receptivity to partnering with private technology companies." Overall, though, Mr Critelli is more confident about the future than he was a year ago, with two recent acquisitions helping to bolster growth.
The strategy, he says, is to "expand our engines of growth to get up to a platform of sustained 5 per cent-plus organic growth (a year}. We'd like to get there for 2006 and beyond, and next year we will get ourselves in a position to do that."
For the IT industry as a whole, Mr Critelli says the picture for 2005 is uneven. "Customers today are very interested in solutions, they are demanding the ancillary services that are going to make the technology achieve the returns that have been promised. So vendors that provide a package of services and technologies will succeed."
Something of a gadget freak - he says the Apple iPod has changed his life - Mr Critelli says he would like to see further improvements in the way wireless devices work, both at home and in the enterprise, and he looks forward to having a single mobile phone that is usable worldwide.
Warren East of ARM:
Next year will be another tough one to predict, says the chief executive of the UK chip design company. "At ARM, we feel much as we did this time last year, perhaps with slightly more confidence about our own business, notwithstanding what is expected to be a year of lower growth for semiconductor companies. The outlook for the electronics industry continues to be uncertain, with a weakening dollar and poor levels of consumer spending."
Mr East takes some comfort from the last 12 months eventually turning out to be generally good for the electronics industry. "We have gone on record saying that we see the semiconductor intellectual property (SIP) industry growing faster than the general electronics market over the coming years.
The consumer element remains the most difficult to predict, he adds. "The buoyant growth in telecommunications will continue as adoption of 3G technologies evolves towards the mainstream. Consumers are embracing more sophisticated features and services, and handset pricing is coming down to levels where uptake is broadening beyond early adopters.
"We also see chip industry growth beyond the established IT and telecom markets, with demand in the automotive market accelerating. We aren't really predicting any truly 'next big thing' in 2005. We will continue to see various applications growing in popularity, in both the consumer and enterprise electronics marketplaces.
Mr East believes consolidation and convergence will determine what the hot new consumer items will (and won't) be in the coming year and beyond. PDAs and portable gaming devices are morphing into smartphones, and there is more to come, he says.
Dick Harrison of Parametric Technology (PTC)
After a year focused on regaining profitability, the focus at PTC for 2005 is growth, says the chief executive of the US-based product lifecycle management (PLM) software vendor. "My compensation and that of my team is predicated on it," he says, "and we'll be doing it organically and with some acquisitions - no growth, no bonus. You will see us carefully start to identify solutions that will enable us to upsell and win new accounts." These, he said, would be in the PLM part of the business, rather than in the now mature field of computer-aided design software.
For the PLM space as a whole, Mr Harrison says vendors should continue efforts to make the software easier to use. He is particularly optimistic about the "on-demand" market for PLM, especially for SMEs, which may lack the resources to maintain the software. PTC said last month it would use IBM's on-demand structure to offer US-based SMEs access to its Windchill design software.
This approach will continue to accelerate in use, he says: "Companies like Salesforce.com (which offers pay-as-you-go CRM) are doing increasingly well in the US," he says. "But it puts the onus on vendors to focus on ease of use. When you pay by the month, if you don't like it, you can shut it down."
For the enterprise software sector as a whole, Mr Harrison says organic growth will be "do-able but difficult" next year. He sees PTC as a "pretty advanced user" of enterprise IT, and believes corporate IT budgets will continue to be spent carefully. "Today, the rate of return on an IT project has got to be well-scrubbed. We use pilot projects to verify returns before going ahead, and that is what is happening across the board. I don't see the purse strings being opened up - I'd like to see it, but I don't."
Rajesh Hukku of i-flex solutions:
India-based i-flex solutions, which designs and installs banking software, would sell more units but for what Rajesh Hukku, chairman and managing director, believes will be a key trend in 2005: big banks will remain loyal to old, inefficient technology systems because a change is too costly or too daunting.
"We think large banks will stick with legacy systems and at best change a piece of the (IT) puzzle at a time," he says. That will hold back i-flex, which has more banking clients than any rivals, from breaking into the league of large tier one customers.
But what Mr Hukku does foresee is a rising number of medium-sized and small banks adopting wholesale technology changes that "reflect an integrated approach to risk." Recently, i-flex won its first customer in Russia and with several foreign bank customers in China, the company also believes that country's domestic banking sector is emerging as a large opportunity. These and other emerging markets will be the big business driver in 2005.
Although regulatory changes such as the Basel 2 risk provision rules and the US Sarbanes-Oxley Act was expected to trigger a similar effect, Mr Hukku says many big US banks have managed to comply with regulations with "modular" rather than total changes in their technology infrastructure. In 2005, the (IT) puzzle will remain incomplete, he says.
Alex Mandl of Gemplus:
The chief executive of the world's largest smartcard producer is confident of seeing double-digit volume growth in the smartcard market next year. "In the telecom market, we believe that the arrival of 3G will bring greater Sim (Subscriber identity module) card renewal," he says. "In financial services, strong growth in 2004 put us within the top suppliers for banking cards, including EMV (chip and Pin cards), which is set to continue, and we expect the identity and security business to progressively gain in importance."
Mr Mandl says Gemplus needs to maintain its leading position in telecoms, and continuing to grow in banking and ID and security. "ID and security currently accounts for around 5 per cent of our current business and I would like to see this be more significant.
The arrival of 3G is a positive trend for the smartcard industry, says Mr Mandl, and Gemplus is well positioned to exploit the roll-out. "In the IT sector, security is the main issue and this is what we do best. Smartcard solutions are now at the fore of any discussion on securing access to a company's resources, be it physical, logical, on site or remotely. 2005 should be an interesting year in this respect."
Mr Mandl adds that Gemplus is seeing an increasing trend for the incorporation of smartcard technology into hardware, such as keyboards, offering two and even three factor security solutions (something you have, something you know and then something you are).
Karen Richardson of Epiphany:
The chief executive of this US-based customer relationship management (CRM) software company says she is more confident now than a year ago. "While 2004 had some challenges for the enterprise software space, Epiphany made strong progress in establishing our E6 CRM suite as a credible next-generation solution and in rebranding the company around CRM that unlocks value in existing investments," she says. "As we move into 2005, we will see increasing demand for solutions that drive real business value and growth, coupled with an ever-decreasing appetite to 'rip and replace' existing systems.
"Prospects for the enterprise software market are good, if you can give customers what they really want. Companies want solutions that help them increase profitability through top-line revenue growth. And, they want solutions that fit into their infrastructures and adapt to the way they do business.
"In enterprise computing, we are going to see growing interest in getting more value out of existing systems. And, companies have lost their appetites for massive, multi-million-pound, multi-year deployments with limited payoff at the end.
"Two predictions for what won't be hot: one, "big bang" implementations, two, buying CRM software from PeopleSoft or Oracle. With the saga going on between these two companies, it is unfortunately the customers who end up losing. There is no way for customers to know which applications will live, and which will die, and what their future is if they chose Oracle or PeopleSoft for CRM."
Karl-Heinz Streibich of Software AG:
"We're quite confident in 2005 that we will make progress in our growth plans," says the chief executive of the German-based supplier of transaction and business integration software. "We expect customer IT spending to show moderate growth. Our goal is two-digit growth in the mid-term. Next year should be a good year for Software AG.
"For us, the key challenge over the next year is achieving growth. Customers today are much more selective in their investments.
"In Germany, we expect the IT and telecoms sector to grow by 3 to 3.5 per cent, which will again beat the overall industry average. This could be the case in Europe, too. The times of explosive growth are clearly over - IT is now a more mature industry.
"The key trend moving ahead is integration - no question about that. The focus is on integrating all systems so enterprises have a single view of key information about their customers and critical operating issues.
"A significant decline in big enterprise systems such as mainframes has been predicted several times. But demand is still huge and will remain so. I think business process outsourcing, on the other hand, will have only moderate growth and not the landslide growth many have predicted. Also, the use of mobile applications will increase but only moderately because they are quite complex when it comes to integration.
Lucy Woods of Viatel:
The chief executive of the European fixed-line telecommunications operator is looking forward to 2005. The past year has been a year of transformation for Viatel, which re-emerged from Chapter 11 in 2002, and secured Dollars 52m of new funding in May.
"Now the transformation is complete and we can start selling, and getting better known in the industry. We've just closed our best ever month in terms of new revenue so I am quite excited about 2005," Ms Woods says.
The telecoms industry in general, she says, still has a lot of issues to resolve - many companies are still heavily dependent on switched voice traffic, which is continuing to decline as tariffs come down and people switch to mobile and internet telephony.
For Viatel, however, internet telephony could be an opportunity rather than a threat. The company carries no voice calls at the moment, only data, but could look to entering the voice market by offering voice over IP (VoIP) services. Ms Woods says she wants to be very sure that VoIP is "not a case of the emperor's new clothes", before she takes an investment decision.
Another technology she believes will be big in 2005 is Ethernet, a type of wired local area network developed in the mid-1970s. Faster versions are now emerging, and Ms Woods says European companies are getting interested in the technology.
What is less clear, as Ms Woods sees it, is the future of Wi-Fi networks, the wireless internet access offered at a number of coffee shops and airport lounges. "One day it will probably be useful, but at the moment it doesn't seem like a big investment priority."
Interviews by Andrew Baxter, John Blau, Alan Cane, Annie Counsell, Khozem Merchant, Maija Pesola and Stephen Pritchard.
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