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Hard Q1 for US software firms

Sanjay K Pillai

Hopes that the US software market is on the mend have been shattered. Revenues announced by US software companies for the first quarter, January-March, are lower than last financial year's fourth-quarter results.

First Albany, a leading information technology research and analysis corporation, with partner Meta Group, said data showed that spending would remain tight in the US. Closer home, Infosys Technologies is seen likely to forecast growth rates lower than the 30 per cent it predicted last year.

Even if one discounts Infosys's penchant for under-promising and over-delivering, the continued shrinkage of information technology budgets abroad is not good news for the country's software companies. The latter were hoping they had seen the worst of billing rate cuts and deferred joinings.

Campus recruitments will now be directly hit. Analysts feel that with the bad news going around, firms recruiting despite the downtrend may decide to take a relook.

Yesterday, three US-based companies, along with a host of smaller names, announced disappointing results for the first quarter.

E-commerce software developer Commerce One, supply-chain management software major i2 Technologies and content management software vendor Interwoven announced weak information technology spending was likely. They blamed shrinking budgets for disappointing quarterly results.

First Albany, with partner Meta Group, has reported that information technology spending, which remained flat over the past two years, would continue to remain tight for a third consecutive year.

In its most recent report, dated March 25, the research group said spending intentions continued to imply little or no growth for the industry. In such an environment, information technology allocations would face obstacles. With even smaller budgets at the disposal of financial, technology and executive heads, sales cycles are likely to be prolonged.

However, there is good news for Nasscom flag-bearers. The research reports that information technology outsourcing is expected to gain ground. But the proportion of outsourcing likely to benefit Indian software companies remains unclear.

US software services firms are eager to set up their own Indian operations so as to offer the same scale and competitiveness that their Indian competitors are offering to clients in the US. In the Indian context, it looks like another summer of waiting.

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