>INFORMATION TECHNOLOGY SECTOR (JM FINANCIAL)

Industry interaction update

Our interaction with industry experts across the BFSI (US, Europe) & Telecom (Europe) from Gartner on the business and IT demand environment pointed to early signs of stability in the North American market. Europe, however, remains troubled, and could lead to continued stress on IT vendors in the current fiscal.

US BFSI seems to stabilizing, but Indian ISPs are still reeling under pressure with services such as Application Development and Package Implementation (where they have greater presence) continue to be rationalized. While consolidation could bring in some short term M&A work, industry experts think it is unlikely to compensate for overall budget decline.

BFSI demand in Europe remains under stress, with critical economies such as the France, Netherlands and Germany still under fire. Consolidation is also far from over in Continental Europe. Offshoring maturity continues to remain low, with clients preferring near shore delivery over the pure play offshore model.

Telecom Service Providers (TSP) have been relatively stable in Europe and could see better budget disbursals in 2H CY09E. However, BT, which is the largest offshorer, continues to be the pain point for ISPs given the restructuring in the BTGS division, and problems in its core Fixed-line carrier business.

Banking and Financial Services (BFSI) -US:

■ US stabilizing, some up tick in discretionary spend but…: Gartner believes that BFSI IT budgets in North America are seeing signs of stabilization with a marginal recovery in discretionary spending. However, the bulk of the activity is currently focused at opposite ends of the services spectrum, namely Consulting and ITO. Such contracts are currently being awarded to pure play consulting companies such as IBM, Accenture, KPMG, Deloitte, or strong infrastructure vendors such as IBM and HP-EDS who are willing to leverage their balance sheets.

■ …. Indian vendors (ISPs) are still facing the heat: The sweet spot of ISPs, namely Application Development and Package Implementation (~25% and 20% of revenue respectively), continues to remain under pressure. Gartner’s recent 1Q CY09 IT services update (02 July 2009)
suggests that Consulting, followed by System Integration and Application Development could lead the revival cycle. However, no such signs seem to be visible in the US BFSI sector at present. .

■ Testing could offer ISPs some relief: ISPs seem to be having better luck with Testing deals (4-7% of revenue), where volumes have witnessed a moderate pick up. However, our channel checks suggest that pricing pressure continues to be intense for these services.

To see full report: IT SECTOR