MindTree set to tighten belt at its R&D division

MindTree Limited, a Rs 1,500 crore Bangalore-based software and R&D services firm, is taking up measures to tighten the belt at its research and development division. The division accounts for around 10 per cent of its topline and employs 1,200 people of a total of close to 8,000 employees.

Ashok Soota, executive chairman, MindTree in an internal communication, has said that utilisation in R&D services business has fallen to 57 per cent, which is clearly putting a lot of pressure on the overall business profitability.

“Hence, starting August 1, 2009 MindTree Minds (people) in billable roles in R&D Services who are neither on an approved MindTree Incubated Technology project nor on a customer project, for the whole of the previous calendar month, will take 15 per cent cut in salary. This cut in salary will be restored from 1st of following month in the event of the Mind (employee) getting assigned to a customer project or in the event of R&D Services financial utilization crossing the threshold of 65 per cent,” Soota added. MindTree’s senior vice-president (HR) Puneet Jaitley said that close to 200 employees will be affected with this pay cut.

The company has further noted that its long term vision remains unimpaired, notwithstanding the short term uncertainly. “Given the severity of the environmental changes, we could have taken more drastic measures. Indeed many other companies in our space have cut back more, including layoffs. We are watching the market situation and these minimal measures reflect the hope that there will be an upward movement from this quarter onwards,” Soota added.

Industry analysts indicate that the R&D division has been going through tough times in the recent past and with Soota himself stepping into sendIng this internal mail about cost cutting, the same should be viewed in the context of management expected to taking up more measures. Sources also indicate that there is a possibility of MindTree looking at the option of bringing in a strategic investor in the R&D division, though company officials detail that this step is not required.

The first quarter of current fiscal has been challenging for MindTree on the revenue front with a large impact of ramp downs in the R&D business. Globally the semiconductor and networking industries are going through their worst turmoil which has impacted this significantly. Revenues at $8.8 million, was a decline of 27 per cent QoQ and 25.3 per cent YoY.

MindTree at the end of first quarter of current fiscal stated that it witnessed continuing uncertainties and the global outlook is still gloomy.

“The overall negative outlook has impacted the IT Industry and this is reflected in the negative growth and cautious outlook expressed by other IT companies,” the company noted.