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Annus horribilis

As companies look to contain costs, it’s the IT services industry that will likely bear the brunt.

Analysts are predicting a torrid 2020, and the IT services sector will be hit particularly hard.

Analysts Global Data said in its Tech, Media @ Telecom Trends 2020 report, updated to now include the effect of Covid-19, that the pandemic will be by far the most significant threat to the technology industry this year. It will put ‘incredible strain’ on the world economy, it said, which has effectively been halted for three months.

Covid will test financial robustness of companies, many of which will not survive this initial phase. As for the rest, almost all organisations will see a significant drop in revenues.

Meanwhile, desk-based staff members are largely working from home. This will have consequences for the IT industry, and some sectors will perform better than others, it said, such as collaboration software vendors and cloud providers. Others, for example in IT infrastructure, will see massive disruption to their supply chains. They may fare better in the future, it said.

“All IT services companies will have an awful 2020. The best-case scenario for services companies is that the impact lasts only one or two quarters,” it said.

This is partly due to IT services staff not being to get to clients’ businesses, and must use remote working tools, just like everyone else.

Digital transformation on hold

The report says that providing technology services that enable digital transformation is an important part of the business for service vendors. It predicts this business will evaporate in the short term, as companies look to cut costs and put non-essential programmes on hold. This state of affairs will bring ‘short-term pain’ for services companies.

It said the consumer electronics sector will face similar short- and long-term pain. In the short term, broken global supply chains will have a serious effect, and while there may be strong demand from isolated consumers, manufacturers will be unable to meet the demand. On the other hand, as lockdowns end, it predicts a worldwide recession, and there will be fewer people willing to spend on expensive products.

Telecom companies are, however, reasonably isolated from the crisis. Reliable connectivity has now become a critical commodity, it said, as working and schooling from home becomes ubiquitous.

Cyber security companies will also likely fare well during the crisis, as the threat of attacks rises with the less secure environment of home work.

It said the shift to remote working, may provide a brief respite, as many companies may need support. Some industries are seen to be struggling with remote work, however, such as the contact centre industry, which, in general, was not prepared for the mass rollout of remote work. Agents cannot make the same number of calls from home, and communicating with colleagues is seen as a challenge, it said. At present, it suggests a mix of office workers and remote work.

For the report, Global Data’s analysts looked at 600 companies in the technology, media and telecoms sector.
 
Looming unemployment

In South Africa, Treasury director general Dondo Mogajane is on record as saying that the country’s unemployment rate could reach 40%. The economy could also contract by an estimated 6.4%.

The IMF predicts the global economy will contract by 3% this year. Economic growth in the US is expected to drop by 9.1% and 5.8% in Europe, the Global Data Coronavirus executive briefing said. It quoted the Bain consultancy as saying the US could permanently lose a quarter of businesses, accounting for 10% of national revenue. It said other advanced economies were likely to suffer losses on a similar scale. Economic growth in Europe is expected to contract by 3.8%, according to the European Statistics Office. And the economy in China contracted by 6.8% in the first quarter of the year, said that country’s National Bureau of Statistics.

Globally, the World Travel and Tourism Council said it expects job losses of about 100 million in the travel and tourism industry. The International Labour Organisation (ILO) said it believes 6.7% of working hours across the world will no longer exist in the second quarter of the year, which is equivalent to about 195 million workers. The ILO also said that 1.6 billion people in the informal sector – about half the global workforce – are in imminent danger.

Regionally, an estimated 30 million people in the United States have filed unemployment claims by the last week of April. The IMF said it expects unemployment in Spain to reach 20.8% in 2020. About five million lost their jobs in China in January and February. In France, 10 million have lost their jobs, and the Centre for Monitoring Indian Economy predicts that 14 million will lose their jobs.
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