IT companies in the $60 billion technology services sector have geared up to announce the results for the first quarter of 2009-10 with the returns of the deal flows coming in, though in smaller sizes of about $25-30 million.
Most of the new deals are involved in 'business transformation outsourcing', where an Indian vendor would work with a client to reshape the processes like payroll, HR administration to bring in efficient business operation and achieve cost savings.
According to a research and advisory firm Booz & Co and investment bank Avendus Advisors, the sales are growing by 10-15 percent for the top six IT companies. Suvojoy Sengupta, a Partner at Booz & Co told Economic Times, "There is a massive scale down from the 40 percent operating margin levels, to which many companies have got used to." He also expected the operating margins at over 20 percent.
TCS has bagged a five-year deal with the Volkswagen Group for its IT infrastructure and a contract from ABB in the U.K. to implement business software. Wipro signed a $34-million contract with Sunoco, U.S.-based marketer of petrochemical products. Infosys has forecasted 11-13 percent increase in rupee terms for the quarter ended June 30 this year.
However, Gartner, an IT-focused research company is of the view that there would be single-digit sales growth quarter-on-quarter for the sector. Partha Iyenagar, Vice-President and Senior Analyst at Gartner said, "We have started getting calls from clients in the U.S. and Europe on how to cut costs by off shoring. There are positive signs. We have already hit the bottom, but we might see a recovery only by late 2009."
Software industry grouping Nasscom has said that it expects single-digit export growth during 2009-10. "In the short term, we might see single-digit sales growth for top tier IT majors. Year-on-year, we might see a flattish sales growth. However, in dollar terms, we might see a dip for some IT companies," said Harit Shah, IT Analyst at Angel Broking.
With a buoyant force of the hope of recovery, several IT companies are spending more to win new contracts and increasing their sales force. "Companies are investing a great deal in sales people and there is an increased focus on incumbency of clients," said KS Ananthanarayan, CFO, Birlasoft.
Thursday, July 2, 2009
New Deals
Reliance Infra bags IT consultancy deal
Anil Ambani-led Reliance Infrastructure said it has bagged IT consultancy contracts from five electricity distribution companies in Karnataka.
The distribution companies are Bangalore Electricity Supply Co, Chamundeshwari Electricity Supply Corp, Mangalore Electricity Supply Co, Hubli Electricity Supply Co and Gulbarga Electricity Supply Co, Rel Infra said in a statement.
Under the project, Rel Infra as an IT consultant would develop IT blueprint for the state electricity boards (SEBs), and submit detailed project report, assist the SEBs in appointing IT implementation agency and evolve programme for management of IT implementation.
"We will bring in our domain expertise and experience in implementing IT infrastructure from our Mumbai and Delhi electricity distribution business," Reliance Infrastructure Chief Executive and whole-time Director Lalit Jalan said.
This achievement marks Reliance Infra's foray into IT consulting in the power utility space and going forward, we would look for IT consultancy and implementation opportunities in other states as well, he added.
The distribution companies are Bangalore Electricity Supply Co, Chamundeshwari Electricity Supply Corp, Mangalore Electricity Supply Co, Hubli Electricity Supply Co and Gulbarga Electricity Supply Co, Rel Infra said in a statement.
Under the project, Rel Infra as an IT consultant would develop IT blueprint for the state electricity boards (SEBs), and submit detailed project report, assist the SEBs in appointing IT implementation agency and evolve programme for management of IT implementation.
"We will bring in our domain expertise and experience in implementing IT infrastructure from our Mumbai and Delhi electricity distribution business," Reliance Infrastructure Chief Executive and whole-time Director Lalit Jalan said.
This achievement marks Reliance Infra's foray into IT consulting in the power utility space and going forward, we would look for IT consultancy and implementation opportunities in other states as well, he added.
New Deals, Satyam
TechMahindra to do Satyam's $75-mn project
Tech Mahindra, the new owner of troubled Indian IT services firm Satyam, has for the first time confirmed its continued commitment to a $75 million software development project in Geelong, Australia.
There were grave concerns that the project would be axed after Satyam Computer Services founder and chairman, B Ramalinga Raju, admitted to a one-billion dollar accounting fraud in January.
Tech Mahindra executive vice-chairman Vineet Nayyar said construction of the 10ha development on Deakin University grounds would begin as soon as discussions with the Victorian government were complete and the company is determined to complete the project.
However, he warned that certain aspects of the initial agreement, including funding, could change.
"We're committed to the project ... we've got due diligence in place," said Nayyar, who is currently visiting Australia.
"The goal is to complete the project but we need to investigate how much investment is needed," The Australian quoted him, as saying.
The Geelong project was announced more than a year ago with Satyam as its main financial backer in partnership with the Victorian state government, the City of Greater Geelong and Deakin.
The software hub promises to create 2000 jobs, a much-needed boost for the region in the wake of industry retrenchments.
There were grave concerns that the project would be axed after Satyam Computer Services founder and chairman, B Ramalinga Raju, admitted to a one-billion dollar accounting fraud in January.
Tech Mahindra executive vice-chairman Vineet Nayyar said construction of the 10ha development on Deakin University grounds would begin as soon as discussions with the Victorian government were complete and the company is determined to complete the project.
However, he warned that certain aspects of the initial agreement, including funding, could change.
"We're committed to the project ... we've got due diligence in place," said Nayyar, who is currently visiting Australia.
"The goal is to complete the project but we need to investigate how much investment is needed," The Australian quoted him, as saying.
The Geelong project was announced more than a year ago with Satyam as its main financial backer in partnership with the Victorian state government, the City of Greater Geelong and Deakin.
The software hub promises to create 2000 jobs, a much-needed boost for the region in the wake of industry retrenchments.
IT market, Recession
Global IT spending to drop by nearly 11% in '09, Forrester says
The high-tech industry might finally be hitting rock bottom, according to Forrester Research, which Tuesday forecast global IT spending to decline by nearly 11% in 2009 before vendors and end-user organizations begin to see some signs of recovery later this year and early next.
Forrester Research adjusted its global outlook for IT purchasing in 2009 down again from the 3% decrease the firm previously predicted in March. Specifically in the U.S., the drop in tech purchases will be down 5.1%, a further decline from the 3.1% the research group forecast for the country earlier this year. The primary reason for the shrinking U.S. forecast is the “ghastly” first quarter and “likely similarly poor results in Q2”, according to Forrester.
“The biggest factor bringing the tech market down is the breakdown of the financial systems (which both caused the recession and is exacerbating it),” writes Andrew Bartels, Forrester Research vice president and principal analyst, in the report “ U.S. and Global IT Market Outlook: Q2 2009.” “U.S. businesses have been hoarding cash and cutting capital investment, with IT capital investment getting caught in the pullback.”
That pullback is reducing global spend across all categories of IT, Forrester predicts. For example, the research firm expects purchases of computer equipment to be down by 13.5% and a 12.4% decline in communications equipment buying. Software spending is anticipated to drop by 8.2%, and IT consulting and outsourcing services will be about 8.6% lower, Forrester says.
Forrester Research adjusted its global outlook for IT purchasing in 2009 down again from the 3% decrease the firm previously predicted in March. Specifically in the U.S., the drop in tech purchases will be down 5.1%, a further decline from the 3.1% the research group forecast for the country earlier this year. The primary reason for the shrinking U.S. forecast is the “ghastly” first quarter and “likely similarly poor results in Q2”, according to Forrester.
“The biggest factor bringing the tech market down is the breakdown of the financial systems (which both caused the recession and is exacerbating it),” writes Andrew Bartels, Forrester Research vice president and principal analyst, in the report “ U.S. and Global IT Market Outlook: Q2 2009.” “U.S. businesses have been hoarding cash and cutting capital investment, with IT capital investment getting caught in the pullback.”
That pullback is reducing global spend across all categories of IT, Forrester predicts. For example, the research firm expects purchases of computer equipment to be down by 13.5% and a 12.4% decline in communications equipment buying. Software spending is anticipated to drop by 8.2%, and IT consulting and outsourcing services will be about 8.6% lower, Forrester says.
Wednesday, July 1, 2009
HCL, New Deals, Outsourcing
HCL bags 5-yr deal from US beverages company
HCL Technologies on Tuesday bagged a five-year IT applications support and infrastructure management deal from US-based beverages firm Dr Pepper Snapple Group (DPS). While the IT firm didn’t disclose the deal size, HCL America president Shami Khorana said the DPS deal marked the fourth largest outsourcing contract won by HCL in the US this year. The Indian IT firm had earlier bagged a $350-million contract from The Reader’s Digest Association, a $100-million deal from Xerox and recently, a deal with MTV Networks.
Apart from applications support and maintenance, HCL will provide services, such as end-user computing, integrated service desk, network management and managed print services to DPS. As part of the deal, the Texas-headquartered firm will also become HCL’s anchor service desk customer at its Raleigh delivery facility in the US.
HCL Technologies said it won the deal, while competing against top multinational IT firms, such as IBM, and no other Indian IT firm was in the fray. DPS is an existing client of HCL Tech. The $5.7-billion Dr Pepper Snapple Group produces and markets carbonated soft drinks, juices, ready-to-drink teas, mixers and other premium beverages across the US, Canada, Mexico and the Caribbean.
Its brands include Dr Pepper, Canada Dry, Schweppes and Hawaiian Punch. The consumer packaged goods and retail vertical contributes about 6.5-7% to HCL’s revenues. “This will be a large growth vertical for us going forward,” Mr Khorana said. Companies in the segment are not only looking to cut IT costs but also want to transform their IT infrastructure, he added.
Apart from applications support and maintenance, HCL will provide services, such as end-user computing, integrated service desk, network management and managed print services to DPS. As part of the deal, the Texas-headquartered firm will also become HCL’s anchor service desk customer at its Raleigh delivery facility in the US.
HCL Technologies said it won the deal, while competing against top multinational IT firms, such as IBM, and no other Indian IT firm was in the fray. DPS is an existing client of HCL Tech. The $5.7-billion Dr Pepper Snapple Group produces and markets carbonated soft drinks, juices, ready-to-drink teas, mixers and other premium beverages across the US, Canada, Mexico and the Caribbean.
Its brands include Dr Pepper, Canada Dry, Schweppes and Hawaiian Punch. The consumer packaged goods and retail vertical contributes about 6.5-7% to HCL’s revenues. “This will be a large growth vertical for us going forward,” Mr Khorana said. Companies in the segment are not only looking to cut IT costs but also want to transform their IT infrastructure, he added.
Cost cutting, Recession
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
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
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