IT biggies take 40% hit in billing rates

The race to woo recession-hit clients across the world is forcing IT biggies to reduce their client billing rates, sometimes as high as 35-40 %, though most are still managing to control any sharp declines in their topline.

In certain projects the billing rates are down to $16 an hour, which, analysts say are the lowest ever rates. And such rates will continue at least till Q1 next year, they add. “We have seen such sustained decreases in pricing in most projects. I expect this to last until the year end at least,” says Siddhartha Pai, Partner and MD, at the India offices of TPI Inc, a global outsourcing advisory firm.

“The last month or so has seen unprecedented cut in billing rates even for existing customers,” said Avinash Vashisth, chairman and CEO, Tholons, an offshore advisory firm.

He said that for large testing services, and of services of similar value, $16-20 is the prevalent rate. This is almost 30-35 % lower than the rates being charged earlier this year and steeper than the 20% cut that British Telecom had demanded from Infosys and Tech Mahindra earlier this year on some old and new projects. Also higher-end projects like SAP have faced pricing cuts of around 25%, which is again more than what it was earlier this year.

Top IT firms are offering such rates in the form of introductory discounts for new clients, and for a year or two for existing clients.”Pricing has been reduced substantially for some clients, including higher end projects, specially for long terms strategic clients or those that have been hit quite badly during the recession,” said a senior executive in Infosys who declined to be named as the company is currently in the silent period. A Wipro spokesperson said the company will not comment on speculation.

Another worrying factor for the IT firms is that despite the rate cuts, there has not been a corresponding rise in the volume of deal flow, in either highervalue or the lower end services, says Pai. “The deal flow is still low,” says Pai. Diptarup Chakraborti, Principal Analyst at Gartner, says that he does not see the situation improving before Q1 or Q2 next year.

“Good old days are not coming this year for sure,” he said. A Gartner study says prices of IT services in outsourcing are anticipated to shrink well up to 2010 due to an uncertain economic climate, IT budget constraints and general market consciousness. These rates are even lesser than what the facilities personnel make per hour in their client’s offices even in eastern European countries, where it varies between $16- $22 per hour, according to Vashisth who has offices in Europe.

“There is cut throat competition now between the top five IT companies to retain and snap up new clients,” he says. The rate cut has been in stages. In November, clients demanded flat rates, by the first quarter of this year they wanted 20% cuts, and now most are demanding 30-35 % cuts for not just new, but also existing contracts.
Research analysts with Merrill Lynch and Co, had said in a research note in December that more companies are re-negotiating .
Source: IndiaTimes.com