External Analysis of It Consulting Industry

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Industry Introduction and History
SAIC is a significant player in today’s Information Technology industry. The IT industry is involved with the use of electronic computers and computer software to convert, store, protect, process, transmit, and securely retrieve information. Since the introduction of PCs in 1980, this industry has experienced rapid growth and demand.

The need for the Information Technology industry came with the introduction of the PC in 1980 and the explosion of its growth in the 1990’s. In 1991, the Eastern Europe, Middle East, Latin America, and Rest of Asia regions were small enough to be grouped as Rest of World. As we approached 2000, these regions have drastically increased their share of the world IT market. Asia (without Japan) and Latin America grew 19% and 18%, respectively, from 1995 to 2000. The Middle East and Eastern Europe grew 14% and 13%, respectively, for the same time period. Today, the growth forecast for our industry is expected to be 8% throughout 2008 with a slight decrease to about 5% from 2009 until 2012 .

Presently, the Information Technology industry includes over 35,000 companies generating over $150 billion in annual revenue . These IT companies mainly provide consulting, data processing, technology outsourcing, and systems integration to business customers. IT consulting firms help clients use computers, software, and communications systems more efficiently than they could on their own. These companies also frequently recommend software and hardware systems to their customers that they believe would benefit them greatly. About 60% of industry revenue comes from consulting and systems integration services. In developed countries, IT spending is estimated at around 3% of the country’s GDP while it is estimated that total world spending for IT services equals about 6.25% of the GDP which amounts to $3.1 trillion . As seen in Appendix A, global spending on IT services is expected to increase at a compound rate of 5.8% from 2006 through 2011 with overall general services increasing by 6.9% over the same time span .

Though not exactly history yet, the impact of the current bailouts, especially the Lehman Brothers bankruptcy, is going to be huge. The next two years are expected to be devoted entirely to write-offs for the IT industry’s core businesses while still hoping to pick up some valuable assets amid the current carnage. All IT spending is expected to be put under careful review; therefore, the IT industry shouldn’t expect a huge turnaround until 2010, maybe even 2011.

Macro Environment Analysis (PESTGD)
Political Factors:
With 94% of their revenues coming from the U.S. Government, any political factors will have a huge impact on this company. Most of their contracts are for the Departments of Defense, Homeland Security and all branches of the Military . Many of the contracts they have taken in recent years have been directly related to the War in Iraq and other military operations. A new president in November could mean trouble for SAIC and other companies that do contract work for these branches of the government. Depending on the outcome of the election in a few weeks, it is likely that spending will be cut to these departments and that there will be a greater push for the war to be brought to an end. This would limit the number of contracts offered by the government and in turn reduce SAIC’s profit potential.

Economic Factors:
Even though the country is in the middle of an economic slowdown right now, projections are still favorable for most IT companies. Spending on consulting and other technology is expected to continue to be favorable despite the slowdown. Spending has not been decreasing for IT companies, though the rate at which it has been increasing is dropping. Growth is expected to continue for the industry at a modest rate through at least 2012. Government IT spending is not expected to decline as a result of the slowdown....
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