Demand for IT services is on the rise in Estonia, Latvia and Lithuania. According to a new IDC study, spending jumped by nearly 20 percent in 2004 to $184.76 million and preliminary data points to a rise of 12.7 percent in 2005, reaching approximately $208 million. Latvia was the largest of the markets, representing an estimated 36.3 percent of IT services spending in 2004, but the spread between the three was small, with Lithuania accounting for 33.4 percent and Estonia for 30.3 percent.

The central government and telecommunications sectors spent the most on IT services in 2004, and preliminary data suggests they will again spend the most in 2005. Accounting for more than a third of the market, these verticals are expected to continue to lead investment in IT services over the next few years, as individual firms in all three countries upgrade existing systems and develop new ones, and work to improve efficiency.

"The banking sector was also big, as online banking is now a prerequisite for attracting customers in the IT-savvy states," said Ewa Zborowska, an analyst for IDC CEMA's IT Services group. "This means banks in the three countries have been employing IT services to handle infrastructure and software upgrades as well as the implementation of systems that can handle the surge in data from the provision of electronic services."

Baltic-based providers dominate the IT services markets of the three countries. MicroLink took first, IBM second, and Sonex Holding third, together capturing 28.5 percent of spending in 2004, and although both IBM and fourth-ranked HP grabbed spots in the top 5, only four of the top 20 IT services vendors were from outside the region. "Local players have a firm hold in the markets, easily representing three-quarters of revenue from IT services," said Zborowska. "Although demand will grow steadily over the next few years, competition will be stiff, and smaller providers will need to join forces with larger ones or risk getting pushed out of the services game."

Hardware support and installation was the largest IT services category in 2004 and should remain so in 2005. Software support and installation was second, custom application development was third, and systems integration was fourth in 2004. However, spending in the latter three categories was so close that IDC expects a shifting of positions in 2005, as system integration will likely edge into second while software support will fall to fourth. Altogether, these four areas accounted for more than 62 percent of spending in 2004 and will again in 2005.

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