IT services sector faces armageddon as COVID-19 lockdown forces project cancellations – analysts

Analysts are painting a particularly bleak picture for IT services companies and application software vendors as they struggle to pick up business in the face of the global coronavirus lockdown.

Researchers at Global Data argue that, in the IT economy at least, the economic strain resulting from COVID-19 and government measures to prevent the spread will hit IT services companies harder than any other sector of industry as they try to fulfil contracts and prospective projects get cancelled.

"The impact of COVID-19 on the IT services sector will be deep, immediate, and long-lasting. While there is a potential upside in most sectors, there is little optimism for IT services. With the world in lockdown, IT services staff cannot access their clients' sites. Working remotely will cause significant issues, even for those staff in countries where there is respectable broadband connectivity for millions of home workers," the report, "Tech, Media, & Telecom Trends 2020", said.

India issues

From midnight – as announced by prime minister Narendra Modi yesterday – the whole of India has been put "under a complete lockdown" for the next 21 days. IT services companies based in the Indian subcontinent will be forced to close offices, and hundreds of thousands of staff will try to work from home, said the report, which analysed the impact of COVID-19 on 17 separate technology, media and telecom sectors and incumbent companies.

"This move is unprecedented and will place significant stress on the Indian residential communications infrastructure. It will also test the resilience of these companies' IT infrastructure, which is heavily geared towards in-office working. We remain sceptical that the infrastructure is sufficiently resilient," it said.

But the challenges are just starting for IT services companies: The knock-on economic effect of the virus's spread may mean a shutdown of new projects, as well as the scaling back of existing ones.

"After the dust settles and the world's economy moves back onto a business-as-usual footing, the immediate objective will be to cut costs. Major IT projects will be cancelled or put on hold, leaving very little new business for the services sector. Existing projects will be scaled back to the bare minimum. For IT services companies asking where new business will come from in 2020, the answer is painfully bleak: there will be none," the report said.

The latest warning follows years of declining revenues at some of the largest global service providers - enterprises' shift to the cloud has been one of the main causes. Just last week, IBM put nearly 1,250 people in its Global Technology Services organisation in the UK at risk of redundancy as it continues to trim the division's overheads.

The effect of COVID-19 on business IT projects will also hit application vendors, although not as severely as services companies, or so Global Data reckons.

"Consequently, application software will be at the mercy of the global economy. If China is a bellwether for the rest of the world, then economies will significantly slow for a quarter, before a long slog back to normality. That long slog will be marked by business leaders’ razor-sharp focus on the bottom line. Costs will be stripped out of businesses, and all non-essential spend will be either cut or delayed," the report said.

The IT economy after COVID-19

"All IT projects that can be shelved will be shelved until at least 2021. Software vendors must prepare for a tough year where very little net new business will be won before the final quarter."

Some IT suppliers reported a short-term bounce in notebooks, headsets, displays, VPNs and wireless LANs, while collaboration clouds have buckled on multiple occasions under the weight of the stay-at-home workforce hopping online to work. Cloud vendors of all types will likely benefit due to the nature of the crisis.

In the longer term, IT departments will review the performance of the cloud providers and adjust their strategies accordingly. Performance monitoring tools such as Splunk's AWS workflow monitoring software could see increased demand, as could remote learning software. ®