Accenture: Some clients are operating without annual budgets

For a few months now, it seemed as if enterprise technology spending was a month-to-month affair. Accenture confirmed that theory, noted that "some clients are still operating without approved annual budgets" and cut its outlook for the rest of the year.

For a few months now, it seemed as if enterprise technology spending was a month-to-month affair. Accenture confirmed that theory, noted that "some clients are still operating without approved annual budgets" and cut its outlook for the rest of the year.

Simply put, uncertainty reigns. A quarter of 2009 is gone and the annual budget is still in flux at some companies. 

Accenture operating chief Steve Rohleder made the annual budget comments on its fiscal second quarter earnings conference call. The company reported earnings of 63 cents a share in its fiscal second quarter, a penny better than Wall Street estimates (statement). However, Accenture's revenue was $5.27 billion, below estimates of $5.54 billion. Rohleder said:

Clearly the global marketplace has shifted dramatically over the past few months. Beginning in January we saw heightened marketplace uncertainty which led to a systemic pause in certain segments of the market. This resulted in three factors affecting our consulting business.

First, clients have started differing decisions about new work which has resulted in a slow down in converting our pipeline to revenue in the quarter.

Second, the small extensions and add-ons that normally come through each quarter did not come through at the rate we have seen historically in fact some clients are still operating without approved annual budgets.

And third, in some cases clients have asked us to work with them on reducing the run rate on existing consulting projects.

Accenture's read on its client base goes something like this:

  • Consultants are being used for "sustained cost reduction and operational improvement." CEOs are driving these efforts.
  • Big custom projects have been delayed, but there is demand for SAP and Oracle services. 
  • Customers are looking to cut IT infrastructure costs and data security and privacy, compliance and cost cutting are en vogue.
  • Application outsourcing remains strong. In fact, outsourcing demand overall is strong. Seven of Accenture's top 10 bookings in the quarter for outsourcing were with existing clients. 

Simply put, there is a lot of IT work that needs to be done, but there's a mass pause. Accenture CEO Bill Green added:

When people came back to work after the holiday in January and things just slowed down. If you would look at what happened from mid-December through the beginning of January as it relates to the economy it was very profound and there is a whole life going on this, people came back to work, people just took a pause and the pause that had been I think what we described last time was during the headlights became sort of an institutional thing as everybody said they are uncertain about what direction the economy was going to go in.

And one of the comments Steve made is, some of our clients they don’t even have their '09 budgets finalized yet. So, if you think about that, really what we are trying to account for here is that, that just the plain uncertainty.

Green continued:

To be perfectly blunt about it, I was shocked at the difference between January and December. December was a very good month, frankly. The difference between, you know, December and January, and if you have talked to companies across industries, you will find this out by talking to everybody. It was profound.

When asked whether things have improved in March Green noted that companies are now recasting their 2009 priorities. Meanwhile, many clients have laid off workers and that makes priorities---and who will actually do the work---fuzzy. 

Given the cross currents it's not surprising that Accenture is expecting fiscal 2009 revenue growth to be flat to up 4 percent. Earnings for the year are now expected to be in the range of $2.60 a share and $2.67 a share. Accenture had forecast $2.78 a share to $2.85 a share for the year.

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