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Tuesday, December 16, 2003

Software development and computer services


For the second consecutive year, lackluster growth characterized the computer systems design and related services industry in Canada. Operating revenues climbed a modest 2.0% to $18.33 billion in 2002. This growth rate contrasts sharply with the annual double-digit rates recorded throughout the 1990's.

Firms in Ontario accounted for more than half of operating revenues (52.3%) in 2002, but this share has slipped for the second year in a row. It was 55.9% in 2000. In fact, Ontario and New Brunswick were the only provinces where operating revenues declined in both 2001 and 2002. In contrast, Quebec posted the largest revenue share increase, reaching 23.1% in 2002, up from 20.6% in 2001.

The industry's operating profit margin nearly doubled to 5.1%. Revenues and profits were higher, despite a significant drop (-12.9%) in the value of exports. Exports generated just $2.48 billion in revenues in 2002, down from $3.01 billion in 2000. Systems design firms were able to offset the loss in export revenues by increasing their domestic revenues by 4.8%.

Typical systems design services including technical consulting, systems design and development, application customization and information technology support accounted for 65.3% of revenues, followed by the sale of hardware purchased for resale (8.2%), information technology infrastructure and network management services (6.1%) and the sale of packaged software (5.1%).

Operating revenues for the software publishing industry dropped 8.7% to $5.36 billion, making 2002 the first time operating revenues decreased since statistics have been available on a NAICS basis (1997). The four provinces with the highest revenue shares (Ontario, Quebec, British Columbia and Alberta respectively) all experienced declining revenues.

In terms of profitability, firms managed to reduce their combined operating loss from 9.0% in 2001 to just 0.9%. This improvement was partly attributable to a sharp drop in salary expenses, down 15.9% from 2001. Firms trimmed their number of employees in an effort to cope with declining revenues.

Exports were once again a key source of revenues, accounting for 43.9% of operating revenues.

Packaged software sales generated the bulk of industry revenues, 53.9%, followed by information technology technical support services at 16.8% and the customization and integration of packaged software at 8.5%.

Operating revenues climbed to $2.53 billion for the data processing, hosting and related services industry. This was an increase of 11.3% from 2001, and more than double the level of 1999. Firms operating in Ontario continue to account for the lion's share of revenues (68.9%), followed by Quebec (18.6%), Alberta (5.2%) and British Columbia (5.0%).

Firms in the industry posted an operating profit of 5.8% in 2002, after nearly breaking even in 2001 (-0.3%) and sustaining a large loss (-8.3%) in 2000.

Exports accounted for a far smaller share (2.7%) of operating revenues in 2002 than in 2001 (7.5%). In total, exports generated less than $100 million in revenues for the industry's firms.

Canadian businesses were the principal purchasers of services from the data processing industry, generating nearly 90 cents out of every dollar earned. In fact, business clients in the financial services sector accounted for 36 cents out of every dollar earned.

In terms of services provided, business process management services accounted for 32.0% of revenues followed by data management services (14.7%), information technology infrastructure and network management services (9.3%), application service provisioning (8.4%) and website hosting (7.6%).

Available on CANSIM: table 354-0005.

Definitions, data sources and methods: survey number 2410.

Results from the 2002 Annual Survey of Software Development and Computer Services are now available. Detailed tables at the provincial level for a range of industry characteristics including revenues, expenses, and employment are included in the data release package.

For a free copy of the data release package or to enquire about the concepts, methods and data quality of this release, contact Jim Hines (613-951-0640;, Service Industries Division.

For analytical articles on this industry and others, see the Service Industries Division Analytical Paper Series, available online.

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