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Is the Global Technology Sector Falling?

During the 2008 recession, some businesses were impacted more than others. And surprisingly enough, the IT sector did not witness a severe decline as expected. Now, the question remains whether the technology industry will see a similar backlash.

The overall IT spending is now expected to decline 2.7 percent in constant currency terms by the end of this year, as coronavirus impacts the global economy and forces the majority of companies around the world to respond with contingency planning and salary cuts in the short term. In comparison to the previous recessions, the IT expenditure on software, IT services, and hardware is likely to fall down by more than real GDP overall, since consumers and commercial IT vendors have implemented rapid cuts to capital spending in line with the shrinking revenues, market valuations, employee headcounts, and overall profit.

Businesses across the world that are the most impacted during the first half of the year will respond by reducing the number of purchases and projects. Moreover, the lack of visibility with regards to medical factors will make sure that many companies take an extremely wary approach when it comes to budget contingency planning in the coming months.

Some of the sectors that are affected because of the outbreak are mobile phones, PCs, laptops, tablets, and peripherals, with overall devices spending to shrink by 8.8 percent in contact currency terms. The total spending on server/storage and network hardware will significantly shrink overall despite robust demand for cloud services as enterprise customers postpone purchases during the initial response stage of the pandemic. The overall spending on infrastructure (including cloud) will witness an increase by 5.3 percent; however, all of this growth will come from enterprise spending on IaaS and cloud provider spending on servers. On the other hand, the overall expenditure on server/storage hardware will decline by 3.3 percent, and the spending on enterprise network equipment will be down by 1.7 percent.

As India plays a significant role in the global IT services, a downturn by nearly 3 to 4 percent in the worldwide IT expenditure is bound to have a severe impact on India as well. At the estimated rate of decline, if the overall IT services export is taken into consideration, India stands to lose more than USD 5 billion. This, in itself, can be a crucial factor to consider, as a global economic slowdown has officially pushed the world into a brick of a recession, with many executives and employers undertaking salary cuts and thousands becoming jobless across the globe and through industries. While the majority of the Indian population are being engaged in IT services with multinational giants, this can be a crucial cause for concern.

The global IT services industry is going to see a decline in overall revenues by approximately 3 to 4 percent, as the extraordinary nature of the slowdown of businesses induced by the COVID-19 pandemic throttles the entire world. Readings in April suggested that the impact of the pandemic on the overall IT sectors of the world will surge as the year unfolds. By that time, the exact extent of how much the pandemic has impacted India will also be evident. Taking into consideration how important the IT sector is for India, the decline in the overall IT revenues across the world may cost India billions of dollars.

While the actual impact of the outbreak on the Indian subcontinent will be evident by mid-2020, experts predict a decline in terms of contract renewals, IT expenditure, and new deals and agreement getting signed as industries amend by cost structure in coming months. Besides, IT vendors will have to forcibly rework on their growth targets through 2020 as the impact will become evident in the coming few months.

With upsetting projections showing what it may cost to the global IT sector and other industries in the long run, it is up to the tech giants such as Google, Accenture, IBM, and other stakeholders in the industry on how they will innovate and readjust to the new economic parameters to survive the blow. With the overall technology sector taking a major hit, the blast on IT services is expected to be heavier than preliminary estimates.

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