IT services companies hit as clients delay big deals

Slower global economic growth caused by the US-China trade war and a delayed Brexit have taken a toll on IT companies, as clients have cut or delayed spending. Earlier this month, DXC Technology, with about $20.75 billion in revenue, slashed its r...

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Clients are skeptical about whether to invest in tech for growth or leveraging it for cost reduction and hence the uncertainty for large-sized deals.
BENGALURU | MUMBAI: Clients of IT services providers are delaying decisions on large deals, as they deal with greater economic uncertainty, executives at large IT companies said.

Slower global economic growth caused by the US-China trade war and a delayed Brexit have taken a toll on IT companies, as clients have cut or delayed spending.

Earlier this month, DXC Technology, with about $20.75 billion in revenue, slashed its revenue target by $275 million to $19.5-$19.8 billion, as clients postponed signing new deals.


“We’ve seen additional delays in many large deals that we expected to close during the second quarter and that was particularly in the Americas and the UK,” said Paul Saleh, chief financial officer, DXC.

DXC recently said that about $1 billion in deals had been delayed in the first quarter, of which it had closed about 30% in the second quarter. “Some of the customers are not ready to make decisions. So, we’ve seen 30% (of the deals) move to maybe more than the fourth quarter, and some in the second half than we had originally anticipated... (many) are slipping into fiscal 2021 — early part of fiscal 2021 right now,” Saleh told analysts in a post-earnings conference call.

Despite overall growth in outsourcing spends in the Americas region and Apac in the third quarter, spending on managed services contracts were low compared to spends on as-a-service (cloud-based solutions) deals, which saw a rise across industries, according to technology research and advisory firm ISG.
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“Overall, clients are skeptical about whether to invest in technology for growth or leveraging it for cost reduction and hence the uncertainty for large-sized deals. (We have) also come across some deals where clients have put the contract process on hold, though not explicitly stating the reason," said Mrinal Rai, principal analyst at ISG.

India’s largest IT services company Tata Consultancy Services also flagged delayed deals as one reason for slower growth in the second quarter. The weakness came particularly in the company’s retail business. “We had hoped that Q2 would be the strong quarter. That has not turned out. Deals have gotten delayed. Whether they will close in Q3 or not, we will have to wait and see,” TCS CEO Rajesh Gopinathan said last month.
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