Analysts see problem continuing as over 60% of revenue comes from North America
The sluggish demand from the US market will continue to hurt the business prospects of Indian IT outsourcing services providers even as the industry expects to see stability in the overall business environment in the second quarter of financial year 2010.
The delay in recovery of US economy, according to analysts and companies, will eat into the top- and bottom-lines of most Indian IT firms, even as they see a surge in demand from some European countries, including the UK and France, along with emerging geographies like Australia and West Asia. The reason is simple — most of the Indian IT services firms derive over 60 per cent of their revenues from the North Americas, including the US.
“There is no doubt that there is some comfort building in the environment. We are seeing some demand from emerging markets and Europe, but it is small in terms of overall exposure. The US has to recover for the world to stabilise, and growth in the US will happen only when consumers start spending there,” explains V Balakrishnan, CFO of India’s second-largest IT firm Infosys Technologies.
Amid the global financial uncertainties in the first quarter of the financial year 2009-10, Indian companies showed some resilience by posting almost flat to slightly negative growth in their top-lines. One of the real concerns for the industry was, however, the decline in volumes.
Even though, India’s largest IT services provider, Tata Consultancy Services (TCS), showed a volume growth of about 3.5 per cent, the volume for Infosys and Wipro declined by about 1 per cent and 1.5 per cent respectively. Thus reflecting the state of the affairs in the supply environment.
In the current quarter, while most of the companies are seeing a much better demand than the previous quarter, they are still maintaining a cautious approach owing to the US market, which is yet to come out of the downturn.
“We are not in a downturn now, even though we are not in a recovery phase. We have now come to a stable phase. The recovery will be late by the US market, and we will have to wait and see when this happens,” says S Mahalingam, chief financial officer of TCS.
The silver lining to the cloud is that some of the deals announced recently, including the estimated $1.5-billion BP outsourcing contract to three Indian IT vendors, reveal that clients are now opening up their purse strings to accommodate discretionary spending. In the current environment, according to analysts, clients may be ready to spend as many of them may want to exhaust their existing IT budgets before the year ends. The second reason is that they may be perceiving a better outlook for the overall economy.
“New projects or new business spending by companies had increased in the July-August-September quarter, which will definitely have a positive impact. But there’s no correlation as yet whether this will result in better margins and higher revenue,” cautions Sabyasachi Satpathy, partner, Tholons Advisory.
“The worst is getting over and we are currently moving from a stable to positive territory even though we are maintaining a cautious approach. Our funnel has gone up from the end of the first quarter to now,” says Suresh Senapaty, chief financial officer of Wipro Ltd. Wipro had given a cautious revenue guidance of 0.2 to 2 per cent for the second quarter of the current fiscal.
Outsourcing and offshoring are very critical for companies to become more operationally efficient and agile. But when recovery happens and the economy bounces back, the year-on-year growth rates of 30-40 per cent which IT firms enjoyed will be a thing of the past, since the base is very high.
“It might be around 20 per cent or so,” concludes Mahalingam of TCS.
Monday, August 31, 2009
New Deals, Outsourcing, Satyam
Mahindra Satyam says it's chasing 30 large deals
Information technology services provider Mahindra Satyam is pursuing around 30 “large deals” and expects some of these to materialise during the current financial year, according to a senior official of the company.
“We are vigorously pursuing 20 to 30 large deals in the life sciences, public services, transportation and engineering domains, which are showing a lot of positive business momentum. We expect to close some of them to our advantage by this fiscal end,” the official told Business Standard, while declining to share the size of the deals.
A large deal, in normal IT parlance, is anywhere between $50 million (around Rs 245 crore) and $100 million (Rs 490 crore).
The scam-hit company, now logging on to the recovery path after Tech Mahindra acquired a controlling stake in it in April, has been seeing increasing business stability since then, winning over 30 new logos (customer wins), including the five-year SAP contract with global pharmaceutical major GlaxoSmithKline, the official added.
“The company has been witnessing high traction of business from emerging markets like India, Europe, Middle East and Asia (MEA) and the Asia Pacific. These new geographies are now accounting for close to 55 per cent of our business, while the contribution from the US is hovering around 45 per cent, a positive trend which is slowly beginning to grow and drive our revenues further,” he said.
On the company’s business processing outsourcing (BPO) arm’s recent major client win in Tata Docomo for providing back-office support, he said the company had already hired 1,000 professionals for its client. “Mahindra Satyam BPO will be adding 300 people every year over the next five years to service this telecom client,” the official added.
Mahindra Satyam, which had in June announced a one-time virtual pool programme aimed at addressing idle staff costs while retaining talent, had so far recalled 1,000 employees. “We will be calling back some more,” he added.
Mahindra Satyam stock ended the trade at Rs 113.85 on the BSE on Friday, down 0.52 per cent against the previous close of Rs 114.45.
“We are vigorously pursuing 20 to 30 large deals in the life sciences, public services, transportation and engineering domains, which are showing a lot of positive business momentum. We expect to close some of them to our advantage by this fiscal end,” the official told Business Standard, while declining to share the size of the deals.
A large deal, in normal IT parlance, is anywhere between $50 million (around Rs 245 crore) and $100 million (Rs 490 crore).
The scam-hit company, now logging on to the recovery path after Tech Mahindra acquired a controlling stake in it in April, has been seeing increasing business stability since then, winning over 30 new logos (customer wins), including the five-year SAP contract with global pharmaceutical major GlaxoSmithKline, the official added.
“The company has been witnessing high traction of business from emerging markets like India, Europe, Middle East and Asia (MEA) and the Asia Pacific. These new geographies are now accounting for close to 55 per cent of our business, while the contribution from the US is hovering around 45 per cent, a positive trend which is slowly beginning to grow and drive our revenues further,” he said.
On the company’s business processing outsourcing (BPO) arm’s recent major client win in Tata Docomo for providing back-office support, he said the company had already hired 1,000 professionals for its client. “Mahindra Satyam BPO will be adding 300 people every year over the next five years to service this telecom client,” the official added.
Mahindra Satyam, which had in June announced a one-time virtual pool programme aimed at addressing idle staff costs while retaining talent, had so far recalled 1,000 employees. “We will be calling back some more,” he added.
Mahindra Satyam stock ended the trade at Rs 113.85 on the BSE on Friday, down 0.52 per cent against the previous close of Rs 114.45.
Outsourcing, TCS
TCS sees $30-100 mn BP deal revenue
Tata Consultancy Services (TCS) said it expects to get $30 million-100 million revenue on an annualised basis over the next three-five years from its recently won deal with BP.
Talking about the potential of the deal TCS Chief Executive Ramadorai said, "It could be anywhere around $30-100 million in the next three-five years."
To a query on when would revenue from the contract start flowing, he said, "I think it will start by the third quarter, in a small way but more importantly by next year."
TCS was one of the outsourcing firms that won five-year IT contracts from oil and gas major BP earlier this week. TCS had been selected for engagements in refining, manufacturing and corporate IT with opportunities across fuel value chain including upstream and trading.
Talking about the potential of the deal TCS Chief Executive Ramadorai said, "It could be anywhere around $30-100 million in the next three-five years."
To a query on when would revenue from the contract start flowing, he said, "I think it will start by the third quarter, in a small way but more importantly by next year."
TCS was one of the outsourcing firms that won five-year IT contracts from oil and gas major BP earlier this week. TCS had been selected for engagements in refining, manufacturing and corporate IT with opportunities across fuel value chain including upstream and trading.
IT market, Recession
Sun Micro posts $147 mn loss
Sun Microsystems Inc recorded a $147 million loss while sales eroded 31 per cent in the April-June period, likely the server and software maker's last full quarter as an independent company.
In April Oracle Corp outbid IBM Corp and agreed to buy Sun in a $7.4 billion deal. It is scheduled to be completed this summer, and still needs approval from European antitrust regulators, which could come any day now.
The deal will give Oracle more control over development of the Java programming language, which Sun invented and is a key ingredient of the Internet. It also moves Redwood Shores-based Oracle, a business software maker, into the hardware market. Sun is one of the world's biggest sellers of computer servers, which power Web sites and corporate back offices.
Sun said after the market closed that it lost $147 million, or 20 cents per share, in the three months ended June 30, which is Sun's fiscal fourth quarter. That compares with a profit of $88 million, or 11 cents per share, in the year-ago period.
Excluding employee stock-based compensation and other expenses, Sun said its loss would have been 3 cents per share. Sales in the latest period fell to $2.63 billion from $3.78 billion last year.
Revenue from server sales fell 36 per cent over last year to $1.1 billion. Revenue from support services fell 15 per cent to $886 million.
Analysts polled by Thomson Reuters expected a loss of 19 cents per share and sales of $2.37 billion. For the full fiscal year, Sun lost $2.23 billion, versus a $403 million profit last year.
The latest results mean that Sun has lost $5.6 billion since 2002. It had only two profitable years -- 2007 and 2008 -- in that period.
In April Oracle Corp outbid IBM Corp and agreed to buy Sun in a $7.4 billion deal. It is scheduled to be completed this summer, and still needs approval from European antitrust regulators, which could come any day now.
The deal will give Oracle more control over development of the Java programming language, which Sun invented and is a key ingredient of the Internet. It also moves Redwood Shores-based Oracle, a business software maker, into the hardware market. Sun is one of the world's biggest sellers of computer servers, which power Web sites and corporate back offices.
Sun said after the market closed that it lost $147 million, or 20 cents per share, in the three months ended June 30, which is Sun's fiscal fourth quarter. That compares with a profit of $88 million, or 11 cents per share, in the year-ago period.
Excluding employee stock-based compensation and other expenses, Sun said its loss would have been 3 cents per share. Sales in the latest period fell to $2.63 billion from $3.78 billion last year.
Revenue from server sales fell 36 per cent over last year to $1.1 billion. Revenue from support services fell 15 per cent to $886 million.
Analysts polled by Thomson Reuters expected a loss of 19 cents per share and sales of $2.37 billion. For the full fiscal year, Sun lost $2.23 billion, versus a $403 million profit last year.
The latest results mean that Sun has lost $5.6 billion since 2002. It had only two profitable years -- 2007 and 2008 -- in that period.
IT market, TCS
TCS eyes $1 bn revenue from domestic mkt
Country's top software exporter Tata Consultancy Services said that it aims to double its revenues from the Indian market to $1 billion in the next 3-4 years.
"India has been one of the important markets. We are looking at whether in next 3-4 years we can double our revenue to billion dollars in the Indian market," TCS CEO S Ramadorai said.
At present, the domestic market contributes 10 per cent to the total revenue.
"Every mission mode project (government) that would come on the radar, we will certainly bid for them. TCS is in talks for 3-4 such mission mode projects as of now," Ramadorai said.
"When we look at the domestic market we look at three pillars -- large enterprises, governments - both the central and state governments -- and the third is the small and medium businesses which are part of our overall growth," he added.
Of the three, he expects the large enterprises to contribute more than the other two, followed by the government and the SMB sector.
"India has been one of the important markets. We are looking at whether in next 3-4 years we can double our revenue to billion dollars in the Indian market," TCS CEO S Ramadorai said.
At present, the domestic market contributes 10 per cent to the total revenue.
"Every mission mode project (government) that would come on the radar, we will certainly bid for them. TCS is in talks for 3-4 such mission mode projects as of now," Ramadorai said.
"When we look at the domestic market we look at three pillars -- large enterprises, governments - both the central and state governments -- and the third is the small and medium businesses which are part of our overall growth," he added.
Of the three, he expects the large enterprises to contribute more than the other two, followed by the government and the SMB sector.
H1-B, NRIs
Free the H-1Bs, Free the Economy
This is a guest post by Vivek Wadhwa, an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Executive in Residence at Duke University. Follow him on Twitter at @vwadhwa.
Originally posted on TheWashingtonPost
I have a suggestion for our President on how to boost economic growth without spending a penny: Free the H-1B's.
More than a million doctors, engineers, scientists, researchers, and other skilled workers and their families in the U.S. are stuck in ?immigration limbo." They entered the country legally and have contributed disproportionately to our nation?s competitiveness. They paid our high taxes and have been model citizens. All they want to do is to share the American dream and help us grow our economy.
They could be starting companies, buying houses, building community centers, and splurging like Americans. But because we don?t have enough permanent-resident visas (green cards) for them, they?re stuck in the same old jobs they had maybe a decade ago when they entered this country. They are getting really frustrated and many are returning to their home countries to become unwilling competitors. And they are taking our economic recovery with them.
Xenophobes will claim that immigrants take jobs away and blame them for everything that is wrong in their lives and in America. But as TechCrunch wrote last week, skilled immigrants create more jobs than they take away. That is a fact. My research team documented that one quarter of all technology and engineering startups nationwide from 1995 to 2005 were started by immigrants. In Boston, it was 31%, in New York, 44%, and in Silicon Valley an astonishing 52%. In 2005, these immigrant founded companies employed 450,000 workers. Add it up. That?s far more than all the tech workers we gave green cards to in that period.
It?s not only jobs that they've created. In 2006, more than 25% of U.S. global patents had authors who were born abroad ¿ and this doesn?t even count people like me, who came here, became citizens, and then filed multiple patents. Of Qualcomm?s global patents, 72% had foreign-born authors, as did 65% of Merck?s, 64% of GE?s, and 60% of Cisco?s. I?m not talking about silly patents filed with the U.S. Patent Office here, I?m talking about WIPO PCT applications ¿ the patents that help our companies compete globally.
Why does Silicon Valley need a foreign-born workforce? Because these immigrants are able come to a foreign land where they face hardship and discrimination and stand shoulder-to-shoulder with the world?s best technical minds and most successful entrepreneurs. They are able motivate Silicon Valley?s top guns to work even harder and think smarter. They add a global perspective and enrich America.
The largest immigrant founding groups are Indian, British, and Chinese. Indian-born immigrants, for example, founded 6.7% of America?s tech companies and 15.5% of those in Silicon Valley ¿ but, according to the U.S. census, constitute way less than 1% of the U.S. population. So do the Chinese, but they contribute to 16.8% of our global patents. It doesn?t take a statistician to figure that these are pretty impressive numbers.
Yes, I know that H-1B?s don?t start companies. And that is the problem. We don't let them.
Hundreds of thousands of mostly very smart and highly educated workers who could be starting companies are not. While they wait for their green cards, they can?t even change jobs or accept a promotion, for fear of losing their turn in line. If they lose their job, they have to find another job within 30 days ¿ or get booted out of the country. Their employers know that these workers aren?t going anywhere, so they can go easy on the salary increases and bonuses. Some unscrupulous employers do take advantage of them. And their spouses usually can?t work, and in some states can?t even get drivers licenses, because they don?t have social-security numbers. Does this sound like America?
Unlike the daunting economic problems facing the country, this problem is easy to fix. Just increase the number of green cards for skilled workers. Maybe let them cut the line if they buy a house or start a company that employs a bunch of Americans. My guess is that we?ll get tens of thousands of startups and a couple of hundred thousand houses sold. That is a bigger economic boost than the clunkers program we've just thrown $2 billion dollars at.
Originally posted on TheWashingtonPost
I have a suggestion for our President on how to boost economic growth without spending a penny: Free the H-1B's.
More than a million doctors, engineers, scientists, researchers, and other skilled workers and their families in the U.S. are stuck in ?immigration limbo." They entered the country legally and have contributed disproportionately to our nation?s competitiveness. They paid our high taxes and have been model citizens. All they want to do is to share the American dream and help us grow our economy.
They could be starting companies, buying houses, building community centers, and splurging like Americans. But because we don?t have enough permanent-resident visas (green cards) for them, they?re stuck in the same old jobs they had maybe a decade ago when they entered this country. They are getting really frustrated and many are returning to their home countries to become unwilling competitors. And they are taking our economic recovery with them.
Xenophobes will claim that immigrants take jobs away and blame them for everything that is wrong in their lives and in America. But as TechCrunch wrote last week, skilled immigrants create more jobs than they take away. That is a fact. My research team documented that one quarter of all technology and engineering startups nationwide from 1995 to 2005 were started by immigrants. In Boston, it was 31%, in New York, 44%, and in Silicon Valley an astonishing 52%. In 2005, these immigrant founded companies employed 450,000 workers. Add it up. That?s far more than all the tech workers we gave green cards to in that period.
It?s not only jobs that they've created. In 2006, more than 25% of U.S. global patents had authors who were born abroad ¿ and this doesn?t even count people like me, who came here, became citizens, and then filed multiple patents. Of Qualcomm?s global patents, 72% had foreign-born authors, as did 65% of Merck?s, 64% of GE?s, and 60% of Cisco?s. I?m not talking about silly patents filed with the U.S. Patent Office here, I?m talking about WIPO PCT applications ¿ the patents that help our companies compete globally.
Why does Silicon Valley need a foreign-born workforce? Because these immigrants are able come to a foreign land where they face hardship and discrimination and stand shoulder-to-shoulder with the world?s best technical minds and most successful entrepreneurs. They are able motivate Silicon Valley?s top guns to work even harder and think smarter. They add a global perspective and enrich America.
The largest immigrant founding groups are Indian, British, and Chinese. Indian-born immigrants, for example, founded 6.7% of America?s tech companies and 15.5% of those in Silicon Valley ¿ but, according to the U.S. census, constitute way less than 1% of the U.S. population. So do the Chinese, but they contribute to 16.8% of our global patents. It doesn?t take a statistician to figure that these are pretty impressive numbers.
Yes, I know that H-1B?s don?t start companies. And that is the problem. We don't let them.
Hundreds of thousands of mostly very smart and highly educated workers who could be starting companies are not. While they wait for their green cards, they can?t even change jobs or accept a promotion, for fear of losing their turn in line. If they lose their job, they have to find another job within 30 days ¿ or get booted out of the country. Their employers know that these workers aren?t going anywhere, so they can go easy on the salary increases and bonuses. Some unscrupulous employers do take advantage of them. And their spouses usually can?t work, and in some states can?t even get drivers licenses, because they don?t have social-security numbers. Does this sound like America?
Unlike the daunting economic problems facing the country, this problem is easy to fix. Just increase the number of green cards for skilled workers. Maybe let them cut the line if they buy a house or start a company that employs a bunch of Americans. My guess is that we?ll get tens of thousands of startups and a couple of hundred thousand houses sold. That is a bigger economic boost than the clunkers program we've just thrown $2 billion dollars at.
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