Coronavirus scare: IT firms stare at delay in bagging large contracts

All IT services companies have already widened their travel restrictions from China to many other nations, including Italy, France, Singapore, South Korea, and Japan. Several of them even have imposed a restriction on non-essential travel to the US, which accounts for 60 per cent the revenues of Indian firms.
Winning of large deals and their execution by IT services firms are likely to face delay in the first half of this year due to the outbreak of coronavirus.

 

According to outsourcing advisory experts, severe restrictions on the mobility of human resources as well as the likely delay in decision making by the clients are seen as the key reasons.

 

“Larger transformation deals take a lot of time for execution and focus. Due to coronavirus, it is clear that the teams are going to be distracted for at least the next quarter. Hence, these big deals, which are increasingly becoming the backbone of (revenue) growth will be delayed,” said Peter Bendor-Samuel, founder and chief executive officer of outsourcing advisory firm Everest Group.

 

All IT services companies have already widened their travel restrictions from China to many other nations, including Italy, France, Singapore, South Korea, and Japan. Several of them even have imposed a restriction on non-essential travel to the US, which accounts for 60 per cent the revenues of Indian firms.

 

“We are seeing projects postponed in travel, leisure, and fashion (segments). We are also seeing clients in all industries cancelling meetings, restricting travel, and in some instances closing their campuses. This disruption is absolutely going to have a negative impact on growth with a significant pause in new contracts in the next quarter,” Bendor-Samuel said.

 

Large deals have become the mainstay of revenue growth of IT biggies in recent years. For instance, Infosys, which has guided for double-digit growth in its revenues in the current financial year, has bagged $7.3 billion worth large deals in the first nine months of this financial year. The Bengaluru-headquartered firm had bagged $6.28 billion worth of large contracts in the previous fiscal of FY19.

 

Similarly, market leader Tata Consultancy Services (TCS) has bagged large deals worth $18 billion during April-December period of this financial year. Though Wipro didn’t give specific numbers for large deals, it also had significant wins, including a $1.5-billion contract from Alight Solutions, in FY19.

 

Large contracts take months from the time of initial discussion to closures between the key executives from the client organisations and vendors. Once the deals are signed, transitioning of the works from clients to offshore locations also require significant employee movement. “When there is a shadow over the prospects of global growth, clients will be cautious in their spending. Apart from it, even restriction on movement of key resources to client site for executing a large contract can also pose some challenge for IT firms,” said Pareekh Jain, a IT outsourcing advisor and founder of Pareekh Consulting.

 

According to Hansa Iyengar, senior analyst at global consulting firm Omdia, if further spread of the virus is contained, the business could come back to normal in the second half of 2020. “Provided the virus is contained and summer stops the spread of the contagion further, H2 (of 2020) will likely be business as usual,” added Iyengar.

Clients may turn cautious

  • Delay in winning and executing large deals likely to impact IT firms’ revenue growth
  • Shadow over global growth is expected to turn clients cautious in their IT spends
  • Currently, travel, leisure and automotive verticals have been severely impacted
  • If summer contains the spread of virus, H2 of 2020 likely to see revival in growth

 



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