IT firms brace for reduced client spending next year

by Peter Key, Philadelphia Business Journal

Area information technology companies don’t expect the current economic woes to hit them as hard as the dot-com crash did, but they’re either seeing or expecting some impact.

SAP AG, the German business software giant whose American subsidiary is based in Newtown Square, has imposed a hiring freeze and told employees to curtail travel that doesn’t involve meeting customers.

“We have taken a series of what we call prudent steps to basically ensure cost efficiency and cost-efficient operations,” said Andy Kendze, executive director of media relations for SAP Americas Inc.
The company took the steps after releasing some preliminary third-quarter results earlier this month that its co-CEO, Henning Kagermann, said were below its expectations.

Other IT companies may have to take prudent steps, too, according to the most recent forecasts from technology research firms Gartner Inc. and Forrester Research Inc.

Both firms earlier this month tempered their forecasts for 2009 IT spending, in Forrester’s case from projections it had put out in September.

Gartner now thinks that IT spending could rise by as little as 2.3 percent next year, after earlier predicting an increase of 5.8 percent.

Forrester thinks IT spending could rise by only 2 to 3 percent in the United States and 3 to 4 percent globally. Those possibilities are its worst-case scenarios; its baseline projections for IT spending, which it issued in September, are for 6.1 percent U.S. growth and 7 to 8 percent worldwide.

Area firms are taking those forecasts into account.

“Our plans for 2009 are much more conservative than they were going to be, even at mid-year,” said Diego Calderin, president of Anexinet Corp., a King of Prussia-based IT services and infrastructure firm.

Anexinet, which Calderin expects will post revenue of $48 million to $50 million this year and employs 175, had been growing at double-digit rates the past few years. It no longer expects to do that, but it still plans to follow through on its hiring plan, Calderin said.

One reason is that it is seeing growth in some areas, most notably business process management consulting, which customers are interested in because it can help them operate more efficiently.
Another is that cutbacks at corporate IT departments have put some highly qualified potential employees on the market.

“I think Warren Buffett is the one who says, ‘Now is a buying opportunity.’ It certainly is for IT talent,” Calderin said.
Philadelphia-based software testing firm AppLabs Ltd., which has offices in England and India, also is hiring.

Its philosophy is to increase its spending on sales and marketing during a downturn because that’s when it needs to make the greatest effort to drum up business, said Doc Parghi, its senior vice president for North America.
“We did that in 2001, 2002 during the last downturn and it worked out well for us,” Parghi said.

AppLabs dodged what could have been a sizable bullet earlier this year. It signed a global service agreement with Lehman Brothers Holdings Inc. in spring but Lehman Brothers filed for bankruptcy before AppLabs could start any projects under the contract so AppLabs didn’t perform any work that it didn’t get paid for.

LiquidHub Inc. “is seeing clients being a little bit more careful with their budgets,” said Robert Kelley, one of the Wayne-based IT firm’s founding partners and its chief operating officer.

“We have not seen huge delays in projects or pulling back … like what you saw in the 2001 to 2003 era,” Kelley said.
The company has seen an increase in customers asking about its managed services offerings, Kelley said.
That jibes with what Wayne telecommunications and IT firm Evolve IP LLC is seeing, according to Scott Kinka, its senior vice president for network services.

Rather than put out a big chunk of money to buy equipment themselves, organizations are turning to companies like Evolve to provide services for them, Kinka said. That also enables them to put their IT people to work on projects that will bring them revenue, he said.

The economy is a mixed bag for the companies in Wayne-based Safeguard Scientifics Inc.’s portfolio.
Warren, N.J.-based Advantedge Healthcare Solutions Inc., which Safeguard owns 38 percent of, provides medical billing services. Since people are making fewer to trips to their doctors, “we have to work a little harder there,” said Kevin Kemmerer, managing director of Safeguard’s technology group.

On the other side of the coin, there’s Swaptree Inc., which Safeguard invested in last month. The Boston-based company operates a Web site where people swap CDs, DVDs, books and video games.

“That company is absolutely growing like gangbusters in this market because people want something but they don’t want to pay for it,” Kemmerer said.

As published in the Philadelphia Business Journal