Gartner’s Lower Forecast To Impact IT Industry, Positively!

Market tracker Gartner lowered its global IT spending forecast to 2% for 2013. Earlier this year, Gartner had forecasted spending to grow at 4.1%. How bad is this for the Indian IT industry?

To start with, Gartner has cited reasons for this cut in forecast as recent fluctuations in US dollar exchange rates and a reduction in the 2013 forecast devices.

One important thing to remember about the total IT spending is that it also includes the spending on devices. Devices include personal computers, tablets, mobile phones and printers. Spending on devices makes up for up to 20% of the total IT spends. It forecasted spending on this segment to reach USD 695 billion in 2013, up 2.8% from 2012 and lower than the previous forecast of 7.9% growth. However, considering we are talking about the likely impact on IT services companies, this seems quite irrelevant.

Gartner has maintained that enterprise software spending is on pace to grow 6.4% in 2013. At the same time, expectations for customer relationship management have been raised. Also positive, if Indian IT services companies make the most of the opportunity offered, is the way software as a service (SaaS) and emerging technologies have been impacting traditional models and markets.

Geographically, while the constant currency spending growth in most regions has been lowered, Western Europe’s has been inched up slightly. Strategic IT initiatives in the region will continue despite a poor economic outlook, believes Gartner. In recent time, Indian IT companies have realised the opportunity that lies in this region. Several companies including Infosys and TCS have made acquisitions in this region to expand their presence.

Also, consider this. Europe has been responsible for boosting the performance of IT companies in Q4FY13. While average sequential revenue growth of IT companies in Q4FY13 was 0.12%, revenues from Europe grew by 5.53% on average. If this continues, it will help buoy the performance of the industry to some extent.

Clearly, the forecast is brought down by device sales and currency fluctuations. On the services side of the industry, where Indian IT firms operate, pace is expected to be maintained. Moreover, newer technologies and markets are available for companies to capture on to boost growth. Considering the above and the fact that Q1 is a sequentially strong year, we expect the industry to perform better than the previous quarter.