Rates for IT Services Under Pressure

 |  Includes: ACN, EDS, HPQ, IBM, WIT
by: Larry Dignan

Technology services suppliers may be getting squeezed by customers demanding better rates amid a weak U.S. economy, according to a report from Forrester.

In a report gauging IT services spending Forrester found 70 percent of firms are negotiating lower rates with suppliers and 57 percent are cutting back on contracts. Twenty nine percent are putting projects through tougher ROI calculations. That said 45 percent of the 950 technology managers polled plan on increasing applications outsourcing. Meanwhile, 43 percent are increasing use of offshore outsourcing firms and another 43 percent are farming out infrastructure.

Forrester’s report highlights many cross currents that often appear on earnings conference calls. Simply put, it’s hard to paint the technology sector with a broad brush. In addition services giants–Accenture (NYSE:ACN), Wipro (NYSE:WIT), IBM (NYSE:IBM) and HP/EDS (NYSE:HPQ) (NASDAQ:EDS) all have different takes on the economy.

Among the notable points in the report:

  • Twenty percent of firms plan to outsource telecommunications and network management in the next 12 months. Overall, 25 percent to 31 percent plan to outsource infrastructure in the next 12 months.
  • A third of the companies polled are using third parties for custom apps development with 29 percent outsourcing software maintenance and support.
  • Forrester reports that 46 percent of enterprises plan to hire a third party consultant for strategy projects followed by custom apps development (45 percent) and security assessments (43 percent).
  • Nine percent of firms use offshore resources whenever possible, but companies are becoming interested. Forty two percent say that offshore deliverables aren’t as high in quality as onshore outsourcing firms.