CIO survey shows IT spending strong despite economy

The revenue code of Indian information technology (IT) service firms appears to be strengthening as global customer spend on IT looks up.

A global survey of chief information officers (CIOs), conducted by institutional brokerage CLSA Asia-Pacific Markets along with outsourcing advisory firm TPI, reveals that spending on IT in the second half of 2010 will be the same as in the first, implying continued growth.

Nine out of ten CIOs said they have not made any changes to their IT budgets following the recent poor economic data, said Bhavtosh Vajpayee of CLSA Asia Pacific.

That’s good augury for the likes of TCS, Infosys, Wipro and Cognizant, which get the bulk of their revenues from abroad.

“We are seeing lot of cheer in terms of IT spending across the globe. Thus we are moving steadily to achieve the guidance we gave last quarter,” Rajan Kohli, chief marketing officer, Wipro Technologies, told DNA.

Indian IT service providers have bounced back with emphatic revenue growth post the downturn as firms in the West began to outsource more in a bid to reduce the cost of IT projects and operations. The top three, TCS, Wipro and Infosys have reported around 6% revenue growth in their recent quarterly results.

Market observers see capacity upgrade of computers used by companies, migration from existing operating systems to the latest from Microsoft, i.e Windows 7, and data centre outsourcing as the key drivers.

“About 40% of CIOs say PC refresh is a priority over the next 12 months,” the CLSA-TPI survey report says, adding that 46% of US/ Europe CIOs are planning purchases of new personal computers in the next 18 months.
The report also says that 64% of global CIOs and 71% of US/European CIOs plan to roll out Windows 7 in their businesses.

Data center outsourcing is also set to increase as half the CIOs surveyed consider spending on this head a priority, it says.

However, other observers of the IT sector have concerns on the quality of contracts.

“The projects are happening, but contract tenures have reduced. So, annuity revenue is a point of concern,” said an analyst with a Mumbai-based broking firm, requesting not to be named as he is not authorised to speak to the media.

The contract sizes, too, appear to have shrunk. The second quarter 2010 Global TPI Index, which measures commercial outsourcing contracts valued at $25 million or more, has recorded total contract value of $18.1 billion, down about 13% both sequentially and year on year.

As expected, the major markets of worry were Europe, the Middle East and Africa.