|
| The tough get going | | The worst is over, but no IT momentum yet |
| Business Standard / New Delhi Jul 23, 2009, 00:08 IST |
|
India’s information technology leaders have managed to beat analyst and market expectations by turning in a credible performance in the quarter ended June, in challenging times that show no clear signs of getting any easier. While TCS and Infosys hold back from saying that light is visible at the end of the tunnel, Wipro chairman Azim Premji has struck half a note of optimism by declaring that he sees the “first signs of stability in the business as ramp downs start to taper off and volumes start to stabilise.” What this stability means is that while things were in some kind of a free fall, with technology chiefs in client companies not knowing what budget would be available for the year, now both the industry and clients know where they stand. But there is no upside, as new projects are nowhere in sight. This is reflected in Infosys cutting both its current quarter and full year guidance, and Wipro issuing a virtually flat guidance for the current quarter.
In a situation where global IT spending is projected to go down in the current year by 6-11 per cent, Wipro’s IT services revenue has gone down for the third successive quarter and Infosys’s for the second, while TCS’s revenue has gone up by less than 1 per cent in the last two quarters. This is the result of an across-the-board fall in prices, with no sign of recovery in sight. N Chandrasekaran, who is set to take over from S Ramadorai at the head of TCS, has flatly declared that “we will be lucky if we are able to contain prices at the current levels.” The leading IT firms have sought to counter this in a number of ways. They have raised utilisation (the percentage of staff who are billed) and sought to deliver greater volumes — offering more for less. Plus, they have brought more work home. This has lowered both costs and revenue (on-shore billing rates are higher) while managing to protect margins for the most part. Infosys’s net margin at 28 per cent is virtually where it has always been and TCS’s net margin is down by no more than a percentage point to 18. Both TCS and Infosys have reduced their headcount in the last quarter and the latter passed over increments last year.
One plus point for India’s leading IT services firms has been the absence of any serious political fallout on their business in the client countries, despite historically high levels of unemployment. There has been no impact on outsourcing and offshoring and, if anything, the developed economies will rely more, not less, on Indian IT capabilities in order to improve efficiencies and lower costs. Indian vendors are aware that the easy times are over and are de-risking their business by reducing their reliance on the North American market. Another plus for them is the slow emergence of the domestic market, with government spending through the rollout of e-governance leading the way. This market deserves far more attention than it has got so far.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
