Accenture announced its results last week, and the shares took a tumble. Revenues fell short for the last quarter, and the outlook for the next quarter was also way below expectations. While it may have come as a surprise to some, it certainly was not a surprise to me. The commentary that followed during the conference call alluded to a couple of key trends. I have specifically highlighted below what the CFO, Pamela Craig said – “System integration bookings, on the one hand, reflected rising demand for industry-specific Software solutions, where emerging technologies such as Mobility, Analytics and cloud are part of the mix. On the other hand, the bookings also reflected lower demand and a more competitive environment for ERP systems work. The decrease in ERP work was most pronounced in some European countries, as clients are slowing down their investments in add-on work to existing solutions and generally starting fewer large programs right now.”
This is exactly what I had stated a few days ago in my blog on Cloudshoring – see link here . The takeaways are that enterprises (small and large) are aggressively migrating to the Cloud, including for large systems and applications. The capital investments in software, hardware, and most importantly in Services is far less. The upfront high consulting and “discretionary project spend” is getting replaced with smaller upfront spend, and “pay-as-you-go” models.
Will this trend impact results of other large Tier 1 and Tier 2 Service providers ? I believe so. This is why I believe Nasscom’s projections of 12-14 % for Indian IT Services is not likely to hold.
Infosys will declare its fiscal Q1 results week of July 8, and I expect they will lower their forecast for the year. Currency fluctuations will play a significant part in this lowering of revenues as well. Stay tuned, and I will revert with my analysis of the Infosys results.