IDC Israel: Local IT services market shrank 9.3% in 2002

Israel's information technology services market totaled $1.2 billion in 2002. The market leader was IBM Israel, with $164 million in revenue.

Israel's information technology services market totaled $1.214 billion in 2002, 9.3% less than the $1.34 billion in 2001, states a new IDC Israel report. IDC cites the following factors for the drop: smaller enterprise IT budgets, especially by small and medium-sized private companies; the drop in GDP; less investment in Israel; the ongoing state of war; and competition between IT services companies that led to lower sweeping lower prices in the sector.

IDC states that 2002 was the third consecutive year in which Israel's IT services market shrank. IDC predicts that the market will expand by a modest 2.7% over the next five years to $1.386 billion in 2007.

IDC revised its forecast from late 2002, which predicted only a 2.7% drop in Israel's IT services market in 2002, compared with a year earlier. IDC attributed the difference the worse than expected recession in 2002.

IDC claims that without the large-scale government intervention and projects initiated by the Ministry of Finance Accountant General, Israel's IT services market would have collapsed. Under the circumstances, the government sector determines the size of the market, the pricing of services, and in many cases the preferred software application as well. The government is the largest consumer of IT services, accounting for 25.4% of all projects, amounting to $308.52 million, in 2002. IDC also notes that the manufacturing market grew by 27.8% in 2002.

IDC states that IBM (NYSE:IBM) was the largest company in Israel's IT services market in 2002, with $164 million in revenue. It was followed by Ness Technologies and Matrix IT (TASE:MTRX), although the differences between the top three companies was small. Together with fourth and fifth ranked Hewlett-Packard (NYSE:HPQ) and Electronic Data Systems (NYSE:EDS), the top five companies accounted for 46.5% of the market. IDC adds that following the wave of take-overs and acquisitions in the past year, the ten largest companies in Israel's IT services market now account for 60.8% of the market.

A breakdown by types of activity found that outsourcing was the largest activity, accounting for 26.5% of the market, amounting to $321.94 million. This sum includes the outsourcing of information systems, the largest outsourcing subsector, with $188.1 million in revenue, followed by managing and maintaining PCs and networks, and outsourcing web-based applications and services.

Published by Globes [online] - - on October 26, 2003

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