IT firms to face heat as global enterprises put digital projects on hold

Currently, most tier-1 IT services firms like Infosys, Tata Consultancy Services, and Wipro draw about 40 per cent of revenues from digital services.
As enterprises globally apply the brakes on many ambitious digital projects, IT services companies, which derive a higher share of their revenues from digital services, are set to face the heat. This is also expected to impact the deal pipeline of these companies in the second half of this financial year.

 

Digital initiatives of several global enterprises have been cancelled or postponed in the last couple of months as the Covid-19 crisis has prompted firms to halt non-revenue-generating ventures. “There is acceleration in shutting down of digital initiatives of enterprises that are either loss-making or are not core operations of these companies. This is being done as companies are looking to conserve cash to tide over the crisis,” said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting. 

 

Globally, bigger firms are already going on a fundraising spree. While Boeing has raised $25 billion through a bond sale, Lufthansa has entered into an initial agreement with the German government on a 9-billion-euro bailout deal.

 

Experts said drying up of new digital projects would start reflecting in the deal pipeline from the second half of this year. “Almost every IT services company will be impacted in some form or other due to disruption in digital projects. Major impact will be seen in the short term, mostly during the second half of 2020 when the pipeline starts shrinking,” said Hansa Iyengar, principal analyst, digital enterprise services, at global consultancy firm Omdia.

 

Currently, most Tier-I IT services firms like Infosys, Tata Consultancy Services and Wipro draw about 40 per cent of their revenues from digital services. “The industries that are seeing the greatest impact are retail, hospitality and travel, and oil & gas. However, we are now seeing other industries moving into the highly distressed mode, such as manufacturing, public sector and consumer packaged good,” said Peter Bendor-Samuel, founder and CEO of the Everest Group.

 

However, most experts say enterprises might start spending on digital initiatives from early 2021. They even see some verticals having a rapid adoption of digital initiatives as a fallout of the pandemic.

 

“In some cases, the pandemic has accelerated digital investments in sectors like retail, automotive sales, insurance, healthcare, and education. Overall, digital programmes are likely to resume from early 2021,” said Iyengar of Omdia.

Affected projects

  • General Motors has shut down its car-sharing service ‘Maven’ permanently
  • Walmart has decided to pull the plug on its ecommerce subsidiary Jet.com
  • Royal Bank of Scotland has abandoned its digital banking initiative ‘Bo’
  • Cancellation of projects, dearth of new deals to dry up deal pipeline in H2 of 2020



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