IT spending is expected to reach ILS22.6bn in 2013, with relatively stronger growth in software and services, compared to hardware as the market matures. Although vendors reported a seasonal dip in new projects in Q113, BMI believes IT spending will remain on a positive trajectory this year. The market will increasingly be driven by software and services in key sectors such as government, defence and financial services - resulting in IT services accounting for 36.4% of the overall market spending by 2017.
Headline Expenditure Projections
Software Sales: ILS5.0bn in 2012 to ILS5.1bn in 2013, an increase of 2.3% y-o-y. Device and data proliferation will drive spending on customer relationship management (CRM), databases and business intelligence.
IT Services Sales: We expect IT services sales will outperform the rest of the IT market, increasing from ILS7.73bn in 2012 to ILS7.90bnin 2013. Stable sectors such as government and defence offer continued revenue opportunities, while growth will be derived from cyber and data security, cloud computing and outsourcing.
Key Trends & Developments
The IT market in Israel continues to be held back by the wider economic environment, underpinning our view of weak IT market sales growth in 2013. Despite a domestic slowdown and global economic headwinds, a significant number of opportunities remain. The launch of Windows 8 operating system and an expected increase in tablet sales will offset some of the economic slowdown in the retail hardware market, as will the development of multi-use hybrid notebooks by Windows vendors in 2013 and 2014.
The IT services market will also fare better than either software or hardware, with sales driven by cloud computing, outsourcing and security. As a wider range of cloud computing products are released, and increased competition between vendors lowers prices, uptake will increase among enterprises and government. Particular areas of opportunity for cloud computing include banking and retailing as organisations in those fields looking to save money on hardware investments. Businesses will not only seek to make cost savings, but will look to boost efficiency and increase flexibility of response to customer needs.
BMI also highlights the potential for of continued financial sector spending in Israel as a result of a number regulatory changes introduced in the wake of the economic crisis of 2008-2009.Israeli financial services regulatory body the Israeli Security Authority has increased supervision of companies offering advice with respect to pensions, insurance and other financial products. This, in turn, has generated additional IT spending, with banks and other organisations often needing to implement solutions to ensure compliance within a set time.
Computer Hardware Sales: ILS9.56bn in 2012 to ILS9.55bn in 2013, down 0.1% in local currency terms. The slowdown is primarily the result of macroeconomic factors, but Israeli businesses are investing more to facilitate expansion and development and sales growth should strengthen from 2014.