Domestic Downturn a Boon for IT Services Firms

Demand for IT services will likely buck an economic slowdown as companies look for ways to cut costs while spreading operations overseas, according to analysts.

Tech trend watchers from Gartner expect services spending to increase nearly 9% to $733 billion this year, vs. 8% growth for the entire IT industry (which includes services, software and hardware).

The primary growth driver will be companies looking for ways to pare costs and sustain profit margins as the U.S. economy slows and profit growth recedes.

The continued need for IT services also stems in part from mergers like NYSE's (NYX Quote) tie-up with Euronext that joined companies with operations in various countries. Mergers often fuel demand for systems integration and network service support so employees working under the same corporate banner can share information easily.

The focus on cost-cutting means growth in spending on IT services will likely favor companies like Accenture (ACN Quote), Infosys (INFY Quote) and Cognizant (CTSH Quote) that have a large portion of their workforce in low-cost areas, namely in India, according to Cowen analyst Moshe Katri.

Cowen makes a market in shares of Cognizant and Infosys, but has not provided investment banking services to them in the past twelve months.

Infosys, one of the largest offshore services companies, will be the first to report quarterly earnings when it announces second-quarter results on Thursday. Analysts expect the company's revenue to jump 33% to $992 million as earnings rise 31%, according to Thomson Financial.