Tech budget delays hitting IT companies

Bengaluru: Ongoing geo-political and economic uncertainty is likely to push corporate houses and organisations to delay their IT spending budget decisions for next year.

IT sector experts are of the opinion that budget for the next year by most clients are likely to be finalised by February-March of 2024.

“Firstly, what is happening in Middle East, nobody knows whether it is going to escalate or de-escalate. Secondly, in the US economy, though businesses are doing well, consumer spending is slowly coming down. So, there is a likelihood of a mild recession. European countries are also struggling for growth. With all these uncertainties, clients will be very cautious. They will take time to finalise their IT budgets. Even next year budget will be known only by February-March 2024. So, softness in the market continues along with uncertainty,” V Balakrishnan, chairman, Exfinity Ventures & former CFO of Infosys told Bizz Buzz.

“Inflation has come down but it has not come down to a comfortable level. That is the reason that most central banks are saying that they will hold interest rates for a long time.Therefore, it’s a wait and watch (for most clients),” he added.

Usually, many deals come for renewal during November-December period of a year. Similarly, clients finalise their IT spending budget towards the end of a year for the next fiscal year in the US and European geographies.

Like last year, the decision on IT budgets is likely to be delayed given the cautiousness among clients owing to growth uncertainty in their sectors.

According to latest forecast by consultancy firm Gartner, worldwide IT spending is expected to reach $5.1 trillion in 2024, representing an increase of 8 percent compared with this year.

The largest tech markets in 2024 will be IT services at $1.55 trillion, communication services at nearly $1.5 trillion, followed by software spending at approximately $1 trillion. Spending on cloud computing, as well as cloud vendor price increases, will lead to the fastest area of spending growth in software and IT services, Gartner has said.

The consultancy firm also noted that very little revenue contribution will come from generative AI despite the hype and rush for investment among technology firms.

“In 2023 & 2024, very little IT spending will be tied to Gen AI. However, organisations continue to invest in AI and automation to increase operational efficiency and bridge IT talent gaps,” Gartner said.

Despite positive commentary on the IT spend in 2024 by Gartner, many believe that the first two quarters of next year will be challenging in terms of growth prospects for IT services companies. Meanwhile, sources in the know said sales team of IT firms are on an overdrive to renew existing contracts as many of them come for renewal from next year.