Forrester presages weaker 2012 for IT

Impacted by volatile economies in Europe and the US, global information technology spend would significantly decelerate in 2012, according to technology market advisory Forrester Research.

“The US and European economies are dancing on the edge of a recession but haven’t yet fallen,” said Andrew Bartels “As a result, the outlook for the global market for business and government purchases of technology goods and services will see slowing, though still positive growth, in 2012.”

While the spending will grow, the growth would be at half the rate seen in the current calendar year, according to Forrester’s Global Technology Market Outlook, which came out on Tuesday.

Technology spend — including that on software, hardware and related services — will grow about 5.5% in 2012, compared with around 11.5% in 2011.

To be sure, the forecast factors in only weak economies and not recessions in Europe or the United States.

On a global basis, IT purchases will be $2,042 billion in 2011 and $2,154 billion in 2012, with the growth driven mostly by underlying economic growth and adoption of newer technology.

At about $352 billion, or 17% of the overall spend, information technology outsourcing is the addressable market for Indian IT services exporters such as Tata Consultancy Services, Infosys, Wipro, Cognizant and HCL Technologies. Spend on system integration and IT consulting related services make up another $405 billion, Forrester estimates.

The forecast comes with many ifs and buts, considering the volatility in several large economies and which way the tech spend will swing depends a lot on political will

“The biggest threat to tech market growth in the US is the failure of political leaders to respond to clear signs of economic weakness with additional economic stimulus,” Bartels wrote in the report.

On the other side of the globe, in Asia, heavy handed policy actions or inability to manage overheating economies could also result in tech budgets being cut.

India’s largest software services exporter, TCS, which clocked over $8 billion in revenues in the last fiscal, however, continues to remain positive about the growth potential and is yet to see any sign of budget cuts or project ramp downs by clients.

The company is actively engaging with clients to make sure they are not caught by surprise if the slowdown were to have any impact on their clients, as it happened in 2008.

“CEO Chandrasekaran recently met about 35 CEOs in client organisations to get an indication of their business outlook and decision making on IT spending,” noted Ganesh Duvvuri, Kunal Sangoi and Omkar Hadkar, IT analysts with Mumbai-based brokerage Edelweiss Securities in their report on TCS following an interaction with the company management. “TCS, presently, is witnessing deal closures and project ramp ups and based on the discussions with clients does not expect any budget cuts.”

Other IT exporters such as Infosys have been more cautious in their outlook and have been warning that the growth prospects could be potentially marred in 2012.