Valuation of the Custom Software and IT Services Industry

The custom software and information technology services industry covers organizations that provide computer programming services on a contract or fee basis. Companies in the industry write computer code and offer services such as providing ongoing maintenance and modification of custom software, training, general information technology management, and systems analysis and design.

Industry Overview

The custom software development sector is currently seeing an increase in demand. Corporate spending on computer systems and related software and services rose 11.9 percent in 2004, declined 8.3 percent in the first quarter of 2005, and appears to be once again on the rise. Equipment and software spending rose 11 percent in the second quarter of 2005 and continued gains are expected based on current economic expansion.

The custom software industry is largely supported by corporate spending and is therefore highly susceptible to changes in the economy. As corporate spending for new projects becomes available, demand for the industry increases. When cost cutting measures are put into place, however, new projects are quickly suspended. The industry grew rapidly during the tech boom of the late 1990's. When the economic downturn hit, however, business spending on equipment and software contracted even faster than the overall economy.