Capgemini warns of ‘sharp reduction’ in IT spend

Analysts and service providers are warning of a fast fall in IT spending, after supplier Capgemini reported a nine percent drop in revenues.

Detailing its third quarter results, which fell year-on-year to €1.95 billion (£1.75 billion) Capgemini told investors that the tough economic conditions has caused a “sharp reduction in corporate IT spending”.

Revenues at rival Logica, announced a day earlier, fell three percent year-on-year to £2.73 billion for the quarter, and it warned of “weaker market demand”.

Richard Holway, chairman at analyst firm TechMarketView, said the results from the two firms mirrored each other, and reflected the “grim” general trend.

Outsourcing was the positive and “redeeming feature” at both firms, he said, with such revenues falling “just” 2.7 percent at Capgemini and growing 11 percent at Logica. The UK was the best performing region, growing 1.5 percent at Capgemini, compared to North American revenues falling 7.3 percent. At Logica, UK revenues grew seven percent.

At both firms, consulting and professional services were “the worst hit” sectors, Holway noted. They fell 12 percent at Logica, and Capgemini warned those services were the “most vulnerable to the economic cycle”.

Offshoring was also being affected, Holway noted, adding: “The cost gap between offshore and onshore has narrowed because of the economic downturn. Clearly that same climate means more availability of skilled onshore staff.”

“Anyone looking for signs of recovery in the mainstream software and IT services areas outside of outsourcing will be sorely disappointed,” Holway said.

Copyright © 2009 IDG Communications, Inc.

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