US IT spend to rise, Indian cos say amen

MUMBAI: IT investment and spending is set to rise in the US, according to a forecast by Forrester Research. This may be good news for Indian vendors hurt by the rising rupee and worries of troubles in the sub-prime lending space spilling over into other areas.

“With a moderate tech investment slowdown mostly behind us, the tech sector should experience improving prospects in the second half of 2007. We expect that the next wave of technology innovation and investment will kickstart in 2008. The steady improvement in tech investment in the third and fourth quarters of 2007 will set the stage for an even better 2008,” the report by analyst, Andrew Bartels, and his colleagues said.

The US has been witnessing a slowdown in spending on computer and communications and to a lesser extent in areas such as IT services and outsourcing. The demand environment for Indian IT firms, however, has been strong and this was re-affirmed in the current quarter where the tech leaders posted strong growth from the North America region.

For Infosys Technologies, North America revenues were at 62.6 per cent of its total revenues, unchanged from the previous quarter, and for Tata Consultancy Services up from 51 per cent to 61 per cent. Even smaller players, such as Tech Mahindra, with British Telecom as it largest client, maintained US revenues at 19 per cent of total revenues, unchanged from the previous quarter even as its revenues grew.

“As has been true for the past two to three years, the Indian vendors of Infosys, Tata Consultancy Services (TCS), and Wipro outpaced the rest of the industry,” the Forrester analysts noted.

Sector-wise, in the first quarter of 2007, the computers and peripherals saw a fall in demand, while growth in communication equipment was flat. Software witnessed as healthy demand of 11 per cent, while services saw a 6 per cent growth.

As the slowdown tapers off, Forrester predicts that IT services spends in the US will grow by 8 per cent in the second quarter, as will spends on computers and peripherals. Software and communications equipment are predicted to grow 10 per cent and 9 per cent respectively. However, the analysts did not totally rule out the possibility of a recession threat.

“The depressing effects over time of a slumping housing market on consumer spending could turn out to be greater than they have been so far. A spike in oil prices could drive gasoline and heating oil prices back to the peaks of 2006,” the report said.