Research commissioned by Siemens Financial Services during December 2005 reveals that IT and Telecoms vendors expect business investment in the UK to rise by 2.85% in 2006, a growth rate that is 40% higher than the government’s expected 2005 figure. This shows steady economic development next year at UK plc, which is good news for the IT and Telecoms industry. But alongside the optimism that end-user companies will invest more heavily in their technology base, survey respondents also believe that their end-user customers would be keen to build up their cash reserves during the coming year. It is therefore felt that ICT vendors who offer their customers flexible financing options are likely to benefit most from the investment upturn.
The Siemens survey, conducted amongst the country’s top 150 IT and Telecoms vendors, quizzed respondents on their predictions for 2006 end-user business investment and how they thought the nation’s business community would most likely use its profits during the coming year. Nearly half of survey respondents thought that businesses would principally use profits to reinvest in their companies, but coming in a close second was the use of profits to build cash reserves (cited by over a third of respondents) – for acquisitions, marketing campaigns, to mitigate risk of sales volatility, and to reduce the need for expensive bank borrowing.
In order to build cash reserves, but also be able to invest in growth, respondents to the survey believe that offering financing techniques for technology acquisition – techniques such as leasing, hire purchase, tech-refresh and so on – will grow by a further 14% in 2006, a rate that is almost as strong as the 16% growth expected in 2005 . The use of point-of-sale finance in the ICT channel has considerable room from growth, with penetration levels of around 20%, compared with the digital imaging industry’s estimated level of about 90-95%. IDC tells us that the majority of IT solutions in Western Europe comprise of more than 65% software and soft-costs (training, consultancy etc), so the new breed of all-embracing financing packages are likely to become all the more important for the ICT business.
Rod Barthet, Director at Siemens Financial Services, comments, “The 2006 outlook for the IT and Telecoms industry looks very healthy indeed, without being over-optimistic. UK businesses are expected to continue to invest in growth – something that is critical for any healthy Western economy. But cash caution, learnt through the tough years after the millennium, has left its mark. There is no doubt why the use of financing techniques to fund technology acquisition continues to grow – that, and the tightening replacement cycles for IT which we see happening in the UK and Germany.”