Tuesday, 29 April 2008

IT recruiters "There is no clarity"

In the last week or so I have had many conversations about the effects of the current financial circumstances on SITS stocks. Some companies are doing even better because of the environment (BPO players like Xchanging and software companies like Autonomy who can help with compliance issues). But those involved in new enterprise projects, with more than a year ROI, are starting to suffer. But nowhere does the feedback seem more conflicting than in the IT recruitment sector.

George O’Connor (Panmore Gordon) quoted one company saying “there is no clarity from our customers yet”. George’s view (quoted with permission) is as follows:

The IT industry should pull through this year. There is much to come from follow-on implementation projects that started before H2 2007, development of new/green data centres, new interest in HR systems as a consequence of changing demographics, and the new era of “Internet Computing and Data in the Cloud” (Web 2.0 meets the commercial enterprise). The difficult time for operating results will be next year.

The latest news from India is that IT recruitment is slowing; smaller IT companies are expected to see a drop of 30–60% in recruitment this year as locals say that there is a definite slowdown in hiring. Positively, for the short term, it does suggest that the immediate impact – improved utilisation, smaller pay hikes and less churn on billable heads – gives potential upside to margin forecasts for the offshore brigade. The poorer news is likely in the longer term (ie the subsequent quarter) as revenue falls because the pipeline starts to empty.

Back in the UK, the CBI/ Pricewaterhouse Coopers financial services survey concluded that IT spending in the year ahead would be “flat”. For UK IT recruitment, we are not surprised to learn that the number of IT contractors going without work for at least 12 weeks rose for the first time to its highest level for three years.

Figures from Giant group show that ‘long-term joblessness’ among IT contractors rose this month to 5.5%, up from a 2-year low of 4.4% in 2007. Giant also said that the number of contractors ‘sitting on the bench’ remained “very low”, at a time when skill shortages continue to pressure associated pay rates upward. That said, in uncertain times freelance/contractor staff typically move to more secure permanent, albeit lower-paid, roles. However, the current trend appears to be that IT folks are moving to freelance jobs. The implication is that the number of full-time roles has already diminished as companies have been quick to cut headcount requirements.

Jobs agency Robert Walters has already said that permanent IT hires face a downturn in 2008. Recruiters say that financial institutions are taking stock of their IT headcount and are being more cautious about hiring, which recruiters describe as “a trend not too dissimilar to five or six years ago” – we admit that in our conversations our general impression is that companies are ‘leaner’ than they were back then. Fears of layoffs and an attitude of ‘keeping options open’ are reportedly making candidates settle for contract work.

A lack of clarity?

I think the situation is getting clearer. The marketplace is tightening but this is not showing through in current trading or performance that much. The ‘super tanker’ effect will keep results positive for at least this and the next quarter. But the outlook – particularly for 2009 – is worsening.

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