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| CURRENT SECTION :: News | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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A series of solid first-half trading statements from its top players has helped the IT services sector shake off the gloom that has been surrounding the technology industry. Delivering what it hailed as “outstanding” first half-year figures, IBM said total sales grew 13% to $26.8bn, helped significantly by a 15% rise in global IT services revenues to £10bn. This week Capita, a much smaller and newer IT player, said that, in the last six months, ICT and multi-service deals were its biggest asset in boosting operating profit by 18% to £140.6m. And yesterday Atos Origin, the IT services group contracted for London 2012, declared higher first-half operating profit (£98m), and reported growth performance in IT consulting had risen. Daniel Toms, of financial IT recruiters Anson McCade, said the biggest IT consultancies would always feel less impact from the tighter economic climate than their smaller counterparts. “Large-scale, long-term, often public sector projects worth £100m-plus are less likely to be affected by these [macro] economic conditions,” he added, “and these are the type of contracts won by the larger consultancies.” Nonetheless, the recent buoyancy in IT project services, typically training, systems development and consulting, flies in the face of analyst warnings in February that contracts would dry up for the foreseeable future. One reason why IT services is defying the downturn is that the economic “uncertainty” has inspired clients hiring consultants to take a “flight to quality,” according to the Management Consultancies Association. “Clients [are] saying that, if a project is worth doing, then it's worth doing well. In other words, it is something that justifies the involvement of a big name firm, not necessarily the cheapest.” Yet one analyst who recently predicted that non-critical IT service projects would be scaled back or shelved, yesterday reiterated that the slowdown was still incoming. “The [economic] impact is simply being delayed as a result of IT services companies managing to thrive on existing clients and existing projects that are already underway since 2007,” said Rajeena Brar, an analyst at Pierre Audoin Consultants (PAC). “But when these existing projects come to an end, I do not expect new projects to come in as fast as they did a year ago. As less new projects come in, there will be less demand for IT contract staff, and hence an impact on contract rates.” Matt Smith, a director of Harvey Nash, the IT services and recruitment group, testified that technology and business consultancies were still living on overspill from previous years. “Many IT outsourcing deals are over a lengthy period and providers could still be reaping the rewards of deals struck some time back,” he said. “Equally, the IT services market does provide opportunities to reduce costs in the short- term, which could be [another] part of the recent positive results shown by some of the big players in the market.” The Institute for the Management of Information Systems reflected on the trading statements of the two largest IT consulting firms to recently update the market. “Both IBM and Capita are making a lot of money from taking over inefficient and fragmented operations,” Phil Virgo, the institute’s strategic advisor said last night. “[By] using latest generation techniques, including shared open source databases, to strip out slack and offer better service at lower cost than those they replaced. “One example apparently saw over twenty transmissions networks replaced by three…note, however, that at a lot of this is being done by incremental change within existing framework contracts - not new projects.” While financial services is the likeliest industry to have cut its IT work, projects both in and outside the industry will continue because of compliance, long/short-term efficiency gains and revenue-generation. But PAC added that the number of executives who believe today’s macro economic conditions will not improve until at least the end of 2009, and possibly the start of 2010, is increasing. “Hence, I would expect the second half of 2008 to be a more negative one as the credit crisis worsens and those projects [that were] delayed to finally impact business revenues,” Ms Brar warned. “Banks were hit first, now being followed by the retail sector and manufacturing sector, for instance. The impact is rolling out across the different verticals.” Yesterday, Barclays proved that the economic impact was still being felt in financial services, as it became the latest in a long line of banks to cut its IT contractors’ pay rates. “IT training and IT contract staff usually gets hit first,” PAC reflected. “While IT contractors on the whole will see cuts, certain specialists will see an increase. This will be the case for risk management professionals – as risk management and security rises to the top of agenda.” A survey last month by Harvey Nash found that companies were no more likely to make redundancies than they were six months ago, sounding some cause for optimism for IT staff. But in the last three months, demand for freelance project managers to run new IT initiatives seems to have fallen, according to the database of PM3, a project management supplier. Its managing director Steve Pragnell said: “There has been an increase in the number of contract project managers looking for work, a decrease in their rate expectations and a trend of companies laying off their contractors”. He said many of the lay-offs hit contractors who had been with their clients for “several months if not years” and mostly affected “generalist” rather than specialist IT services practitioners. “We recently posted two adverts on a leading job site,” Mr Pragnell explained, “one for a contract IT PM and one for a contract Engineering PM. We had over 150 responses to the former and only 7 to the latter.” Pointing to its survey, Harvey Nash said there was “still good demand for the right kind of skills,” similar to the combinations of IT specialisms that were sought-after in the last major downturn of 2001. “There will always be demand for the right IT people,” the IT group said. “Between 2001 and 2003 the one contractor that was never out of work was the one who could act as an interface between the business and the outsourcing partner. “In other words,” Mr Smith added, pointing to the downturn’s impact on the IT jobs market, “there is definitely a case to argue that much of the doom merchants are hyping this up. But only time will tell.” Jul 30, 2008 Email this article Printer friendly page Previous Page
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