MindTree to convert product business to services

Move to cost the company approximately $3.6 million.

Bangalore-based IT product and services firm MindTree announced that it intends to convert the wireless products business of its wholly-owned subsidiary MindTree Wireless Pvt Ltd (MindTree Wireless) into a design services business.

The process will cost the company approximately $3.6 million - $3.9 million (around Rs 16.2 crore -17.5 crore). The process for merging MindTree Wireless into MindTree is underway and is expected to be completed shortly, said the company in a statement to the National Stock Exchange. When completed MindTree expects to realise additional operational synergies.

Earlier this year the company scrapped its mobile products business launched a year ago with the acquisition of Kyocera’s R&D centre.

Post that, the company had said it will convert its product business, MindTree Wireless, into a design services business. MindTree had expected that the deal could help it gain strength in the mobile phone manufacturing and product engineering services business.

The restructuring costs, said the company in the release, will be expensed in the profit and loss account for the quarter-ending December 31, 2010. These costs are mainly in the nature of people separation, fees paid to legal advisors, asset write-offs and payments to vendors for cancellation of contracts, the release added.

However, the company believes that the restructuring costs were significantly less than the original estimates of $12-14 million (Rs 54 - 63 crore) that was announced in October 2010.

MindTree had hinted its plan of scrapping the mobile handset project in October 2010. The company’s second quarter consolidated net profit slumped nearly 54 per cent to $5.2 million, which was hurt mainly by its investments in the smart phone and telecommunications products business.