November 18, 2002 (Computerworld) --
Recent research from Merrill Lynch & Co. suggests that big hardware vendors such as IBM and Dell Computer Corp. will get bigger as CIOs turn to safe, solid vendors in the shaky economy.
In a survey of 100 CIOs -- 75 in the U.S. and 25 in Europe -- Merrill Lynch analysts found that IBM and Dell have positive momentum, while Hewlett-Packard Co. and Sun Microsystems Inc. have negative momentum, as measured by whether CIOs said the vendor is becoming more or less important in their IT buying plans.
"Dell is gaining share and becoming more relevant as it moves into the enterprise," the analysts reported in an Oct. 24 research bulletin. Some users are consolidating PC purchases through Dell or using storage technology through Dell's partnership with EMC Corp., for example.
"IBM's stability and breadth [are] winning in this difficult environment," the bulletin said. "Many IBM products were [viewed] as important, including Intel servers, WebSphere, Notes and outsourcing services."
The analysis follows a similar Merrill Lynch report released Sept. 30 (see story). It said that with IT budgets tight, most CIOs are consolidating purchases and going with larger vendors that have strong brands and the ability to provide a wide variety of products and services. The main beneficiaries from this trend are IBM, followed by Dell, Cisco Systems Inc. and HP.
But the latest survey shows that CIOs are wary of the HP/Compaq merger. "Concerned users aren't sure the merger differentiates HP or don't consider HP their platform standard," the Merrill Lynch bulletin says.
Sun is also struggling on the perception front. When asked whether they agree with the statement "Sun is in trouble," CIOs gave an average rating of 5.3 on a scale of 1 to 10, with 10 indicating strong agreement.
In other words, "CIOs slightly agree with this," the bulletin said, and "investors probably strongly agree." The overall conclusion is that "Sun is under attack but not dead," the report said.
Looking at the big picture, the Merrill Lynch analysts said they expect that consolidation in the IT industry will increase, since a full recovery in IT spending isn't expected until late 2003 or 2004.
"A good rule of thumb is that the percentage of profitable tech vendors is inversely related to the number of companies in the field. There are currently roughly 1,400 vendors, and about 40% of them are profitable on a pro forma basis. We think that there will eventually be fewer than 1,000 vendors," the analysts said.
Andrew Bartels, an analyst at Giga Information Group Inc. in Cambridge, Mass., agreed that more consolidation is on the way. He says IT "is no longer a growth industry" and even the growth that will come in 2004 will be only about 5%.
"Enterprises should pay careful attention to vendor viability, since many small and marginal vendors will fail after hanging on through 2002," Bartels said.
Juan Carlos Perez of the IDG News Service contributed to this report.
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