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Squeezing US tech spending & Indian IT

Dec 12, 2008

Amidst financial crisis and economic downturn, Forrester Research, a technology research agency, has reported that growth in US technology spending will slow down next year. The economic slowdown has forced US technology companies to cut back on their technology spending. In its report - US IT Market Outlook: Q4 2008 - the agency has forecasted that 2009 technology spending in the US will grow by a meagre 1.6 %, significantly lower than its earlier projected growth rate of 6.1%. The research firm has projected that the software purchases by US business and government would grow by 5.8% in 2008, and fall to 3.4% in 2009 before bouncing back to 8.2% in 2010. Purchases of computer equipment would grow by 3.1% in 2009 and increase by 6.7% in 2010. Communication equipment purchases growth would slow to 0.8% in 2009, and increase to 8.1% in 2010. As per the same report, IT consulting and systems integration services that have witnessed growth of about 8% in the first half of 2008, will report a decline of 2.2% in 2009.

The report also projects that the financial services industry will cut technology spend by 3% in 2008 and by 4% in 2009, and the construction industry's cut will be 2% each in 2008 and 2009. IT spends will not see any growth from the retail sector, and will slow down to 1% in the industrial manufacturing sector.

The decline in technology spending in the US will affect the Indian IT industry significantly because US is a major revenue provider for these companies. As per IDC and NASSCOM 'Strategic Review 2008', during 2007, North America contributed 48% of total IT service spending across the globe followed by Western Europe, Asia Pacific and developing economies, which contributed 31%, 15% and 6% respectively.

In the backdrop of economic slowdown and declining IT spending in the US, Indian IT firms are expected to get smaller deals going forward. The decision making process is likely to extend and these companies can also see pricing pressure from clients in the US. These factors can hurt margins in the short run.

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