Thursday, 13 November 2008

Doom and gloom galore

(By Richard Holway) There are several bellweathers that we have followed over the last two decades. The fortunes of the ITSAs were always a good indicator of slowdown to come in the IT services sector. Whereas the IT services companies themselves seem to have held up well in the first three quarters of 2008, the ITSAs have been signalling impending downturn for several quarters. That signals real pain in 2009 and probably even more so in 2010. A pretty dramatic indication of the contractor downturn came from BT’s announcement today that it was to cut 10,000 jobs – the majority of them contractors and consultants (although, of course, not all of these are IT related)

Another reliable bellweather is Intel. Afterall their chips are used in about 90% of the world’s PCs. Their announcement, after hours last night, that their Q4 revenue forecast would be $1b or 15% lower was as dramatic as you can get. Particularly so as they had only recently downgraded expectation. The rapid decline seems to have been across the board “affected by significantly weaker than expected demand in all geographies and market segments”.

The FT article (13th Nov 08 - Intel warning indicates decline in business) quotes Roger Kay, semiconductor analyst with Endpoint Technologies, said “I think frankly the worst is yet to come – despite the throttling back by the participants in the supply chain, it won’t be enough, and there will be inventory overhang in Q1 and the first quarter will be worse,” he said.
“We went through this before in 2000 when we mis-predicted the depth of the recession and 2000 was much milder than this.”

You may recognise this point as I’ve been making it repeatedly. The downturn that started in 2000 went on for three years. At almost every point, I was confronted with learned analysts repeatedly calling the nadir. At every point I met CEOs who believed those analysts – mainly because the wanted the downturn to be over quickly.

Nothing would please me more than to believe that we would all be smiling again in mid 2009. But I think I do you no favours by giving you such false hope. We are in for a long, very painful period. Forecasts and stock prices will continue downwards month after month, quarter after quarter.

To be honest, I’m now even more fearful for 2010 than I am for 2009. Much business in IT services is already contracted for 2009. The business you win – or more likely don’t win – in the next few quarters will have most effect on 2010.

Hunker down.

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