In our last newsletter in July I warned on the impending slowdown, however the speed and depth of the current crisis caught all of us by surprise. Fortunately, having spoken to several prominent industry analysts the outlook in IT and Telecommunications is generally still positive.

In the current market, the consensus is that the larger IT vendors are affected but not drastically. There is still a large amount of infrastructure and applications that need to be managed. Though the divisions within these large IT firms that are heavily dependent on the financial sector are quite affected, these firms are well diversified. The Finance Industry slowdown, though significant, will not have a very hard impact. For the smaller companies that are less diversified the risks have increased substantially for the shorter term especially if the exposure is to the Finance sector is high.

Generally, the forecast for Asia is that growth will slow in IT to single digits, but this is still good growth. There is certainly a growing market within Asia itself with a growing middle class and comparatively strong economic growth. The dependence on the US economy for IT Equipment and services is still important but the slowdown from US and Europe is alleviated by continued growth in Asian markets. India and China especially are still seeing very strong growth not only in IT Applications and Hardware but also in IT services. All the same, growth is affected for the next 6 to 12 months but should recover and accelerate from around the middle of next year. Further, cost containment programs are not all bad as it will eventually benefit certain areas of IT especially IT outsourcing services.

On the telecommunications side, the consumer business throughout Asia should still be a good money spinner even with the slowdown. However, impact will be felt by the slowdown in the Finance sector as they are very big users of Telecommunications services, mostly data but also voice and mobile voice. There will certainly be cuts here and it will affect growth but Telcos still have a good base in which business can still be maintained. In the emerging economies, telecommunications still has a lot of growth potential and the growth in the use of mobile devices is an especially strong plus point.

The general view if I can summarise is that apart from IT firms heavily dependent on the Financial sector, the IT and Telecommunications business is still relatively healthy though there will be much caution in the immediate period. This should prevail for the next six month to a year but growth in Asian IT and Telecommunications should start to return to strong growth after that period.