Morgan Stanley: Outsourcing Revenue Headed for Downturn

Tuesday, 06 Nov 2012 11:13 AM

By Dan Weil

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Outsourcing has played a major role in this fall’s presidential campaign, as both candidates accuse the other of pursuing the policy.

But outsourcing revenue looks like it’s peaking after rising since the end of the 2008-09 financial crisis, according to a new report from Morgan Stanley obtained by Business Insider.

That call stems from a series of leading indicators that match up with revenue growth in the outsourcing industry, according to the bank’s analysts.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

Those indicators include euro area consumer confidence, durable goods orders, the Standard & Poor’s 500 Index and private estimates for outsourcing headcounts.

"Outsourcing growth may be less [strong] than many believe with growth decelerating through the first half of 2013,” write Morgan Stanley information technology services analyst Katy Huberty and chief U.S. equity strategist Adam Parker.

Their model shows outsourcing revenue declining at least through the first half of next year. As a result, Morgan Stanley has cut its revenue and profit estimates for companies involved with outsourcing, including IBM, Dell and Accenture.

As for Tuesday’s presidential election, information technology outsourcing is likely to continue in both the private and public sector regardless of who is elected, experts tell CIO magazine.

President Barack Obama has talked about eliminating tax breaks for companies that outsource since 2008. If he’s re-elected, that talk will likely continue, as will the lack action, David Rutchik of outsourcing consulting firm Pace Harmon tells CIO.

He sees Mitt Romney leaving the status quo in place more quietly.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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