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Economic slowdown hits IT sector, they are finding it difficult to win large deals

Economic slowdown hits IT sector, they are finding it difficult to win large deals

  • Economic uncertainity coupled by a pressure to reduce costs is impacting IT sector
  • Clients are skeptic about giving big projects to the IT vendors amid slowdown concerns

Global economic slowdown and uncertainty about the growth prospects in coming quarters has resulted in declining business for IT companies. Most of the major IT companies are of the view that because of these concerns, clients are not willing to award big deals and hence the decision on such projects and deals are delayed. This impacts their overall revenue and profits-Economic slowdown hits IT sector

Few of the major contributors to slow down are the US-China trade war as well as confusion looming around Brexit decision. US-China trade was is an on-going economic conflict which started majorly when US started imposing tariffs and trade barriers on Chinese products coming into US. Brexit decision is expected to be delayed till Jan 2020. These concerns have resulted in cost cuts and delayed spending by clients. This has taken a huge toll on IT companies.

All this has forced many IT companies to reduce their revenue forecast for the coming quarter/year compared to previous ones. Most of the delays in bigger deals are observed from American and UK clients since the trade war and Brexit issues impacts these two countries the most. On top of it, these are the two countries who has given most of the business to IT companies.

According to Paul Saleh, Chief Financial Officer, DXC Technology, they have reduced their revenue target by $275 million to $19.5-$19.8 billion due to delays. They have observed that deals worth $1 billion have been delayed during first quarter. They were able to close around 30% of that during second quarter. However due to the prolonged delays, 30% of the deals can be pushed to third or fourth quarter. There are changes that the deals could even slip to fiscal 2021.

As per industry experts, spending on managed service contracts is quite low as compared to as-a-service(cloud based) which has seen a rise across industries. All these concerns have created a confusion among the clients. They are not willing to invest big amount in new deals. By doing this, they can at least target for cost reduction. There are many such instances where either the deals are delayed/cancelled or put on hold for some specified time duration. Although the reasons are not disclosed explicitly but one can assume that slowdown concerns have taken a hit on the spending.

These concerns have taken a hit on Indian IT sector also. Major IT firms like TCS, Infosys etc. have already flagged these concerns during lower that expected quarterly results. These companies are of the opinion that delay in deals is one of the reason for slower growth in second quarter. Third quarter also remains at the sluggish end since there is still no clarity from clients about the deals. Trade war and Brexit issues are also not showing any positive signs of settling down.

There is also a demand for newer technologies which reduces overall cost like automation, cloud and Artificial Intelligence. Higher productivity at reduced cost is the new requirement from clients. This also necessitates the IT vendors to fast track the process of upskilling the existing employees so that clients demands can be met in coming quarters.

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