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Gartner: Outsourcing drives IT services' growth

Indian firms' share jumps; Hewlett-Packard slips down a rung.

Worldwide spending on information technology services hit $569 billion in 2003, up 6.2 percent from 2002, according to a recent report from research firm Gartner.

IT services range from hardware support contracts to systems integration work to outsourcing--which is when a company farms out jobs such as application development or help desk support. Outsourcing, which can be done within the same country or involve sending work to another nation, is the main engine for IT services right now, said Gartner analyst Kathryn Hale.

"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," Hale said in a statement.

Offshore outsourcing has become a controversial practice in the past year or so, with debate focused in part on the scale of "offshoring" activities. Gartner on Monday said, "Accelerating activity in offshore outsourcing...contributed modestly to the overall growth" in IT services spending.

Gartner also said the revenue of vendors based in India--a flashpoint for offshoring fears--vendors grew 29 percent, to 1.4 percent of the total market.

IBM retained its crown as IT services king. Its market share held steady at 7.5 percent, Gartner said. EDS and Fujitsu remained in second and third places, respectively. In fourth place, Computer Services Corp. leapfrogged Hewlett-Packard. HP, which recently merged its services and high-end computing divisions, fell a space to fifth this year. Accenture remained sixth.

Of these six players, only IBM and Fujitsu grew as fast as or faster than the overall market.

One specific area in which HP has lost ground is in storage services, according to Gartner. These services, which include data storage and hardware maintenance, as well as management services, totaled $22.1 billion last year, up about 6.3 percent from 2002. A separate report from Gartner this week said HP had 6 percent of the storage services market in 2003. That represented a tie for second place among storage hardware vendors with EMC, while IBM ranked first with 21 percent.

Back in 2001, though, HP and Compaq Computer together accounted for 7 percent of worldwide storage services revenue, according to a 2002 Gartner report. IBM had 15 percent, and EMC had 4 percent.

Gartner analyst Adam Couture suggested that one reason the combined HP and Compaq lost share was that the companies had been selling to the same customers. Another possible factor, he said, is management change in HP's storage services operations. "During a change of leadership, companies can lose focus," he said.

HP on Wednesday disputed the notion that it has lost significant market share, if any, in storage services. Thomas Goepel, HP worldwide portfolio manager for storage services, said Gartner's numbers do not capture storage-related services revenue from large HP outsourcing deals, such as one with Procter & Gamble.

Goepel acknowledged that the management structure of HP storage services has changed, with the company integrating storage services into its overall services unit last year. The purpose, he said, was to help HP better address customers' business problems.