The Hindu Business Line : ‘Large deals likely in latter half of 2008’

For most of the Indian IT vendors, a majority of their revenue comes from services, which is core to any company and cannot be cut. The discretionary budget, which would be cut, constitutes about only 15 per cent of the business.

Shamik Paul

Bangalore, March 26 With clients’ IT budgets, especially in the US, delayed, 2008 would be a lean period for the Indian IT service providers. But contracts signed in the latter half of the year are expected to drive revenues in 2009.

Many companies in the US have been uncertain about their technology budget because of the slowdown, and this has delayed their budget decision. Mr Sumit Sarawgi, an analyst with Everest Group, said that in the face of uncertainty, the industry acts cautiously and hence budgets were delayed. Now, the period of uncertainty has ended and companies would off-shore more, he said.

With the off-shore advantage remaining intact, and companies not delaying their budgets by more than four to six months, Indian service providers are expected to sign large deals in the second-half of 2008, industry watchers predict. This would add to their revenues in 2009.

Mr Sudin Apte, Senior Analyst and Country Head (India), Forrester, said that around September 2008, firms would know how much money they have and would be signing big deals. Revenue from these deals would be coming in the last quarter of the Indian financial year 2008-09, he added. He said companies are now going back to the drawing board for this year’s IT budgets.

Once a company decides to offshore or outsource, it takes time before the contract is actually given shape. Mr Avinash Vashistha, Chief Executive and Chairman of Tholons, an off-shoring advisory firm, said that after an offshoring decision is made, the process takes nine to twelve months to bear fruit. The year 2009, therefore, would be a good year for service providers, he added.

IT budgeting

The slowdown would largely impact software and hardware companies, with most customers delaying plans to deploy new technology. Mr Vashistha said about 90 percent of a company’s IT budget is spent on basic infrastructure that cannot be cut at all. The remaining is discretionary, which includes allocation for projects to enhance productivity or deploy new technology. This would either be cut or delayed for a long time, he added.

For most of the Indian IT vendors, a majority of their revenue comes from services, which is core to any company and cannot be cut. Mr Apte said 85-90 per cent of business for Indian IT vendors comes from renewal of contracts. They would not be affected, he said.

The discretionary budget, which would be cut, constitutes about only 15 per cent of the business. This 15 per cent is in literal trouble and would see a flatter growth, he added.

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‘Large deals likely in latter half of 2008’