Weak dollar distorting European IT market

Measuring IT growth in the US dollar, rather than local currencies, paints an over-inflated picture of market conditions, according to a new report from Forrester Research.

Looking at 2004 revenues from 35 IT vendors across the world in US dollars, Forrester found North America grew 7.5 percent, while Europe, Middle East and Africa (EMEA) grew 15 percent and Asia Pacific 12 percent.

But when you look at European revenues in euros and Asia growth in yen, that growth is just 4 percent and 5 percent, respectively.

Andrew Bartels, vice-president and research analyst at Forrester Research, said: "Depending on the currency you use in terms of looking at vendor revenue, you get very different pictures of the state of IT spending health."

Based on this research, Forrester predicts Asia will be the strongest market for 2005, with seven percent growth in dollars and yen, followed by the US with 6 percent growth in dollars and EMEA with 4 percent growth in euros. The global average should come in at 8 or 9 percent.

"This picture we've been painting of modest IT growth is not just a US phenomenon but very much a global phenomenon," said Bartels.

The weakening dollar can make life difficult for European vendors as US companies become increasingly competitive.

Bartels said: "US tech companies like IBM or Dell can play global arbitrage, by buying parts and components in Asia, then selling them in Europe where the euro has advantage."

This is one reason US tech giants have been able to post strong revenue growth though it's not always as strong as it looks on paper, Bartels explained.

Dell, for instance, reported in its most recent quarter 20 percent year-on-year growth for European revenues in dollars but when you take into account the exchange rate fluctuations it's only 14 percent, according to Forrester.

Because of this European vendors should concentrate on Asia and South America, said Bartels, and take advantage of being close to regional customers. "There are pockets of strong demand in Europe which can be expanded and exploited," he said.

The future looks bright, though. Forrester predicts greater IT growth for Europe and Asia than the US. This is due largely to the US reaching tech saturation sooner than the rest of the world.

"Most US companies have adopted the technology they need," Bartels said. "In Europe many are still in catch-up mode."

The full report, Exchange Rates Mask Slowing Global Tech Growth, is available from Forrester Research's Web site.