Opinion

Market picks up after Y2K embargo

Happy days are here again! After the delayed pick-up in work after the Y2K lockdown, it looks like the UK software and services market is recovering strongly if latest results from the Terence Chapman Group are anything to go by.

Ian Mitchell

City briefing

Happy days are here again! After the delayed pick-up in work after the Y2K lockdown, it looks like the UK software and services market is recovering strongly if latest results from the Terence Chapman Group are anything to go by.

TCA Consulting provides IT services and software to the financial services industry - a sector particularly badly hit by businesses refusing to make changes to their systems ahead of the millennium and the leap year. Consequently, many services companies operating in the sector, including TCA Consulting, issued profits warnings as their costs remained static but their revenues dwindled as customers postponed projects.

Ordinarily, in such circumstances, companies would cut their cost base and go into hibernation until market conditions returned. But services companies faced a real dilemma as their major costs are staff, and reducing them would have meant firing staff who are traditionally difficult to find and retain. So most decided to take the hit on the chin and wait for customers to lift the ban on new projects, praying that the lockdown would not last long enough to derail their business.

For TCA at least those prayers have been answered. During the dark days from September 1999 to February 2000 its utilisation rate - the percentage of consultants being charged out on projects - was 49% at an average charge out of £1,000 per day. March was similar, but April has gone through the roof, with utilisation rates up to 75% and rates up to £1,300 per day. A £9m contract to supply ABN Amro to prepare systems for a new pan-European online retail brokerage, announced on 3 May, is an example of the type of deal which has been waiting in the wings for customers to lift their self-imposed embargoes.

TCA Consulting says that current utilisation rates are unsustainable, given requirements for training and so on, and it is looking to hire more consultants.

The company is to be applauded for providing data about its utilisation and charge-out rates, making it one of the very few companies prepared to do so. The figures, backed up by other anecdotal evidence, suggests the lockdown is behind us. Despite some gloomy predictions from analysts, an April/May pick-up in activity in IT projects looks likely to be the most widespread outcome.

This reinforces my message (Computer Weekly, 16 December 1999) that users who wait too long to begin work on projects will find it hard to get the consultants they want, and harder still at a price they are comfortable with.

The rest of 2000 will be incredibly busy for IT services organisations and they will be able to cherry-pick the projects they want to work on.

Ian Mitchellis an IT analyst with stockbroker Beeson Gregory. His opinions should not be construed as investment advice.

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This was first published in May 2000

 

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