US slowdown will impact IT results in Q4

TCS reports project delays by two major clients.

Tata Consultancy Services has stated that two of its top 10 clients have delayed some projects in February, the impact of which will be reflected in its fourth quarter results.

The extent of the impact was not entirely clear because the same clients were also expanding work in some other projects, N Chandrasekharan, COO and executive director, said on the sidelines of an investors' meet here to state that two of the company's Wall Street clients were delaying planned expenditure on IT services.

TCS is not the only IT company to be affected. Analysts say that Infosys, India's second largest IT services provider, had said that there has been a delay in some projects taking off and that this could have a marginal impact on its fourth quarter performance (ending March 31, 2008).

"Both the firms have said that in the short-term there will be softness. For TCS, both these clients contribute three per cent to revenues. But we are not sure if this is on a quarterly or per annum basis. But surely, for the next two quarters, the growth will be muted for most IT firms," said an analyst on condition of anonymity.

Arun Jain, chairman and CEO of Polaris Lab, had said on Tuesday that some banks were holding back projects on account of the subprime crisis. However, he thought the delays were of a short-term nature due to economic conditions and rising cost concerns.

A US economy in or near recession will be the main cause of slower growth in 2008, pulling down IT purchases both in the US and with major trading partners in Europe and the Americas, says the Global IT 2008 market outlook by Forrester.

According to the report, IT purchases in the US will grow by less than 3 per cent. Growth in western and central European purchases will slow to 3 per cent. IT purchases in the rest of the Americas will expand in local currencies at 6 per cent.

Sudin Apte, senior analyst and country head Forrester (India) said, "There will be a slowdown in large deals in the first half of 2008. This could be accelerated in the fourth quarter, especially if the economy is in mild recession."