Datacom takes top spot from Spark in IT services market

Monday, 18 May 2015

Investments in data centres such as this one on Auckland's North Shore have helped Datacom take the top-spot in the IT services market.

Kiwi companies are on top in the $3 billion local information technology services market but the situation may not last.

Datacom has ousted Spark as the country's largest supplier of information technology services, according to researcher IDC.

IDC services research manager Adam Dodds said there wouldn't be many countries where two local firms were battling for the top spot. But he believed multinationals were on the verge of a 'renaissance'.

Globally, the IT services market has been dominated for decades by the likes of IBM, Accenture and Hewlett-Packard (HP) and the companies they have swallowed-up.

Those acquisitions include fellow American company EDS which was a powerhouse in the New Zealand market before it was swallowed by HP in 2009.

Datacom's long track-record of double-digit growth subsequently saw it overtake HP with ease. Last year, Datacom reported it had grown its revenues and profits at an average rate of 12.5 per cent and 11 per cent, respectively, during the previous 10 years.

'It has done an amazing thing showing it can dominate on this space,' Dodds said.

But he believed the time of the US multinationals might come again. They dominated the IT services market when such services were sold as an 'add-on' to expensive mainframe computers and their power declined when computer hardware became 'commoditised'.

The rise of cloud computing, where computer infrastructure and software is delivered to different industry niches from massive data centres could see them regain their mantle, he said.

'You can start to see a light on the horizon for a number of 'globals'. The value of being global now is getting bigger because of their scale and the breadth of the portfolios they can reach into.

'If you are a client, somewhere in the world they will have done something like what is needed. IBM, HP and Cisco are rebuilding their services capability around the cloud and we are seeing growth in companies like Amazon Web Services.'

Datacom New Zealand chief executive Greg Davidson said it was pleased to take the top spot but it was 'critical that we stay ahead of the pace change as we mature service offerings in areas like mobility, cloud, analytics and integration'.

Datacom is also a major player in Australia, where it does almost half its business. It reported a 46 per cent rise in its net profit to $51.4m on revenues of $881m in the year to March last year.

The company has yet to report its financials for the year to March, but it revealed in April that its annual revenues had grown to more than $900 million and its staff numbers to more than 4000.

Datacom is majority owned by Wellingtonian John Holdsworth, who stepped down as chairman last year. The Government's Super Fund is the other major shareholder with a 38 per cent stake.

IDC forecast growth in the IT services market would pick up from a modest 1.9 per cent last year to an average of 2.6 per cent in the years to 2019. Within that, it predicted 'staggering' growth in the cloud-based services market, which it forecast would grow at an annual rate of 15 to 27 per cent over the same period.