January 29, 2009
The outlook for the Indian software in 2009 is "the toughest" ever seen and somewhat "overwhelming". The industry, for the first time in its history, faces a top-line decline in the first half of the year. The story will be "not one of competitiveness but survival".
The massive reorganisation in the US financial services industry which has led to closures, bailouts and mergers, is likely to lead to a cut in its IT expenditure by as much as 25 to 30 per cent, foresees Phanish Murthy, CEO of US-based iGate with large operations in India offering a combined platform for clients' software and BPO needs. The BFSI (banking, financial services and insurance) vertical accounts for a third of the revenues of India's software services industry.
The worst part of it is that you do not know as yet where exactly the trough is likely to bottom out. IT budgets, not just for BFSI but across industries, which are normally fixed annually are now being set on a quarterly or even monthly basis, adds Murthy. So client CTOs who will place the orders themselves do not know where they stand.
The same sentiment is expressed by Srini Rajam, chief of Ittiam, one of the leading technology firms in the country which creates intellectual property in the DSP (digital signal processing) space. Global semiconductor companies are looking at a revenue downturn of 20 to 25 per cent. Thus, the outlook for both services and product firms is equally bleak.
Just as budgets are being fixed for very short periods, revenue guidances are sometimes being revised not on a quarterly but a monthly basis as big listed firms seek to keep analysts in the picture. There is, in fact, a chance of the negative sentiment being "overdone" and firms "overreacting" in lowering sights. The outlook for consumer electronics has been hurt by both fall in overall consumer sentiment and rising unemployment. From chip makers to device makers - Intel, Samsung, Sony and even Microsoft - most have issued dire projections. The only exception is Apple.
Avinash Vashistha, head of Tholons, the offshoring consultancy, recalls that during the earlier crisis period of 2001-02, offshoring revenue growth had slowed, but in 2009 it is likely to be almost flat, negative in the first half and positive in the second half. What is more, virtually for the first time, the Indian industry will experience a pricing decline which will affect different players according to whether they have been commanding a pricing premium or not. TCS will not be hit on this score, but Infosys, which is used to a 10 per cent premium, will be.
Murthy visualises pricing pressure from two directions - one, customers looking for price cuts and two, stiff competition between vendors chasing fewer deals. In this scenario, cost cutting will be the foremost driver and quality and customer support will take second place. Similarly, application maintenance and support will gain precedence over application development.
How long will this continue? Murthy guesses that the current scenario will continue through the first half of 2009. The nadir will come for vendors as more and more companies in the US go into not just Chapter 11 mode (seeking a freeze on obligation to creditors) but Chapter 7 (liquidation). Vashistha sees offshoring going up eventually but that will be only in 2010, with pricing beginning to recover in mid-2010.
Rajam distinguishes the past from the present for the semiconductor industry by noting that it is familiar with cyclicality but till now the ups and downs have been mostly caused by its own actions like excessive buildup of capacity and inventory
The massive reorganisation in the US financial services industry which has led to closures, bailouts and mergers, is likely to lead to a cut in its IT expenditure by as much as 25 to 30 per cent, foresees Phanish Murthy, CEO of US-based iGate with large operations in India offering a combined platform for clients' software and BPO needs. The BFSI (banking, financial services and insurance) vertical accounts for a third of the revenues of India's software services industry.
The worst part of it is that you do not know as yet where exactly the trough is likely to bottom out. IT budgets, not just for BFSI but across industries, which are normally fixed annually are now being set on a quarterly or even monthly basis, adds Murthy. So client CTOs who will place the orders themselves do not know where they stand.
The same sentiment is expressed by Srini Rajam, chief of Ittiam, one of the leading technology firms in the country which creates intellectual property in the DSP (digital signal processing) space. Global semiconductor companies are looking at a revenue downturn of 20 to 25 per cent. Thus, the outlook for both services and product firms is equally bleak.
Just as budgets are being fixed for very short periods, revenue guidances are sometimes being revised not on a quarterly but a monthly basis as big listed firms seek to keep analysts in the picture. There is, in fact, a chance of the negative sentiment being "overdone" and firms "overreacting" in lowering sights. The outlook for consumer electronics has been hurt by both fall in overall consumer sentiment and rising unemployment. From chip makers to device makers - Intel, Samsung, Sony and even Microsoft - most have issued dire projections. The only exception is Apple.
Avinash Vashistha, head of Tholons, the offshoring consultancy, recalls that during the earlier crisis period of 2001-02, offshoring revenue growth had slowed, but in 2009 it is likely to be almost flat, negative in the first half and positive in the second half. What is more, virtually for the first time, the Indian industry will experience a pricing decline which will affect different players according to whether they have been commanding a pricing premium or not. TCS will not be hit on this score, but Infosys, which is used to a 10 per cent premium, will be.
Murthy visualises pricing pressure from two directions - one, customers looking for price cuts and two, stiff competition between vendors chasing fewer deals. In this scenario, cost cutting will be the foremost driver and quality and customer support will take second place. Similarly, application maintenance and support will gain precedence over application development.
How long will this continue? Murthy guesses that the current scenario will continue through the first half of 2009. The nadir will come for vendors as more and more companies in the US go into not just Chapter 11 mode (seeking a freeze on obligation to creditors) but Chapter 7 (liquidation). Vashistha sees offshoring going up eventually but that will be only in 2010, with pricing beginning to recover in mid-2010.
Rajam distinguishes the past from the present for the semiconductor industry by noting that it is familiar with cyclicality but till now the ups and downs have been mostly caused by its own actions like excessive buildup of capacity and inventory
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