Impact of Covid-19 on the IT Infrastructure industryBack
15 Dec 2020, 10:31 — 8 min read
The ongoing Covid-19 crisis has had a devastating impact on many economies across the globe. While the effect of the exact loss of revenue across various sectors is still being assessed, it is safe to assume that businesses related to healthcare, pharmaceuticals, medical equipment, and related sectors are likely to have survived or may have even grown over the last 8 - 9 months.
On the other hand, for some sectors, the loss of business has been mind-boggling. This has adversely impacted the SME sector. In this article, we look at one such crucial sector, the IT Infrastructure (hardware, software and peripherals) industry, where the impact has been mixed in terms of business.
Initially, as more users were forced to work from home, this segment was flush with orders, wherein almost all customers wanted to augment their existing IT infrastructure at home. As a result of this initial shock, and perhaps panic, vendors were flush with orders of laptops, desktops, tablets, monitors, wi-fi routers, UPS, etc. As time passed, the reality dawned on almost all consumers that this is a long-drawn crisis. With the feeling of helplessness creeping into their minds, the buying frenzy came to a halt, especially with the lockdown being partially lifted over the last few months.
One of the most prominent usages from households was the student community. This segment was at a loss to cope with the new normal of studying online and became a saviour for the home segment-focused IT industry.
Initially, as more users were forced to work from home, the IT sector was flush with orders of laptops, desktops, tablets, monitors, wi-fi routers, UPS, etc. Many customers signed on virtual collaboration tools such as Zoom, MS Teams, WebEx, Google Meet, etc.
On the other hand, while business from the home segment was reacting reasonably well, the enterprise segment was blanked out because of the lockdown over the first few months. The only business happening with the enterprise was connected to securing and allocating IT services at home. As part of this exercise, more and more virtual desktop infrastructure was either created or ramped up. Many customers signed on virtual collaboration tools such as Zoom, MS Teams, WebEx, Google meet, etc. Also in demand were online assessment tools being procured by educational institutions and examination bodies.
But as the crisis continued into its second quarter, businesses continued to bleed, and it became clear to the enterprise sector that this crisis is a once in a lifetime situation and therefore some drastic cost cutting measures were put in place. While this resulted in a major slowdown in hardware sales, the usage of cloud services gained considering the lower capex involvement. Many SaaS vendors have reported handsome increase in business enquiries although business decisions may have been delayed. Vendors such as Zoho have reported handsome revenues, as per a NASSCOM study.
During our survey amongst various partners of IT products and services, we have noticed a mixed trend of gloom but followed by some hope for the future. Many vendors expressed the opinion that customers were taking advantage of the crisis and were either asking for a lower price or even renegotiating contracts. Some IT OEMs are also chipping in with special offer as Covid-19 relief, especially on servers and storage devices.
As the crisis continued, some drastic cost cutting measures were put in place. While this resulted in a major slowdown in hardware sales, the usage of cloud services however gained momentum considering the lower capex involvement.
Rohit Luthra, Director with Progression Infonet, Gurgaon, an award-winning Managed Cloud and IT Infrastructure provider to large and mid-market companies, laments the sharp drop in System Integration business over the last few months. On the other hand, there has been a quantum jump in the enquiries for cloud services business recently, he says.
He cites example of lack of trust and lack of skilled manpower amongst SME customers as prime reasons for some reluctance to shift to cloud. Realising the potential to develop and promote cloud solutions amongst SME users, many SaaS companies have launched trial versions of their offerings. With availability of capital being a challenge for many SME companies, such cloud offerings (trial based) are now being looked at favourably.
Anil Saxena, the CEO of Wire Works, Noida, in the business of offering state-of-the-Art, IT Infrastructure Solutions to global and enterprise customers across India for over 30 years, says that the first quarter of the lockdown went reasonably well on account of carry forward business from the Jan - Mar 2020 quarter. Since the infrastructure and data communication business was exempted from the lockdown, the April - June 2020 quarter went well.
From the next quarter onwards, July - September 2020, the business drop was substantial in the range of 25-30%. With many MNCs announcing WFH till July 21, some offices were actually closed or are in the process of being downsized or even vacated. Office rentals have dropped almost 20-25% in the upmarket office complexes across Gurgaon, Noida. Some enterprises are now preferring co-working spaces with almost one third of the staff in WFH mode. Even project management companies are reporting negative growth in similar range. There is some movement in the DC expansion space of the Big Tech companies who are in the expansion mode of their capacities in India, Anil adds.
In terms of course correction to get the business on track and to partially cover their losses, they are planning to work on increasing operating margin using through upsell/cross sell to their existing customers. Most of the hardware and networking SI partners rue the increase in cost of delivery due to Covid-19 compliance. The additional cost of Covid-19 tests, masks, gloves, sanitizers are also adding to the ever-increasing input cost.
During our survey, we have noticed a mixed trend of gloom followed by some hope for the future. Vendors shared that customers were asking for a lower price or even renegotiating contracts. Some IT OEMs are giving special Covid-19 relief offers, especially on servers and storage devices.
Most of the SI vendors are ruing the fact that trading activity has not been included in the new MSME definition. Many of the incentive available to the MSME category are not available to this most crucial sector, the system integrator.
Ultimately, the fate of the IT Industry in India is heavily dependent on some crucial factors such as cost of acquisition, trust on the IT hardware/cloud vendor and clearly defined SoP for all business processes. Another crucial success factor is the availability of skilled manpower to achieve business objective using IT as an enabler.
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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.
Posted bySameer Mathur
SM Consulting (www.smconsulting.in) is a New Delhi based Business and Technology Advisory. We guide our customers on their journey towards adopting Technologies to achieve their...
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