BANGALORE: India's leading software services companies are set to report a fall in profit margins for the last quarter due to a firmer local, though demand for outsourcing is improving in a global economy on the mend. The country's $60 billion sector, which manages complex computer networks to maintaining technology operations for clients such as General Electric and Citigroup, is back to its hiring ways and is also boosting salaries. "All the negatives in the world economy are not out of the system, but the confidence level in the IT sector is better now compared to the beginning of last year," said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services. "The companies are now expected to come back on the growth path, but the key challenge is the currency rate."
A global recovery, recent deal wins and stable prices have brightened the outlook for Tata Consultancy Services and Infosys Technologies, India's top two IT exporters, after the global recession hit the sector last year. The rupee, which rallied to a 15-month high on Thursday, surging wages, and intense competition from global firms such as IBM, Accenture and Hewlett-Packard are seen as key risks for the sector. The rupee is set to rise another 4 percent this year on top of its 4.7 percent increase last year, with gains driven mainly by inbound portfolio investment, according to a Reuters poll. Indian tech firms are a magnet for thousands of young jobseekers with their sprawling campuses offering pizza and Subway outlets, golf courses and fitness centres to retain employees.
The software services sector gets more than half its revenue from the United States but companies are furiously expanding in Asia Pacific, Latin America and the Middle East to reduce dependency in the market and boost growth. Infosys, India's No. 2 software exporter, a trendsetter in the showpiece industry, kicks off the earnings parade on Tuesday, followed by sector leader Tata Consultancy on Friday and third-ranked Wipro on Jan 20. Infosys is expected to post its first year-on-year drop in October-December profit, as wage rises, a stronger rupee and higher sales and marketing costs dent margins. Valued at $32 billion, Infosys, which had previously frozen salary hikes and promotions for this fiscal year, said in October it would raise pay by an average of 8 percent this year for its employees in India. Markets will be keen on the company's comments on business and pricing trends, hiring and IT budgets of its overseas clients in 2010. Last month, Accenture reported a fall in first quarter earnings and gave a sales outlook for the current quarter that was weaker than analysts' expectations.
MARGIN PRESSURES
Infosys expects revenue growth in the fiscal year starting in April to be better than this year as a recovery in the global economy spurs investments by its clients, a senior official told Reuters last month. Consultant Gartner said major British and U.S. firms are focusing on a return to revenue growth in 2010 over cost-cutting, and information technology was central to their recovery strategies. Brokerage Angel Securities said Infosys profit margins are set to drop 245 basis points in Oct-Dec from the preceding quarter due to a 3.4 percent rise in the rupee and salary hikes. Tata Consultancy and Wipro should report margins fell 62 basis points and 38 basis points, respectively, it said. In the quarter, Tata Consultancy shares gained 21 percent and Infosys rose 13 percent versus a 14 percent jump in the sector index and a 2 percent rise in the broader market.
Showing posts with label gartner. Show all posts
Showing posts with label gartner. Show all posts
Friday, January 8, 2010
Thursday, December 3, 2009
Top offshorers seek on-demand apps
BANGALORE: Top outsourcing customers, such as Nokia Siemens Networks, Royal Philips Electronics and ABB are askin g service providers, including
Wipro, Infosys and IBM, to deliver complex business applications as an on-demand service in order to bring down their capital expenditure on information technology by up to 40%.
By asking vendors to manage, host and deliver a software application, such as enterprise resource planning (ERP), these customers are able to avoid large, complex outsourcing contracts and instead pay suppliers on the basis of number of transactions.
Popular business application packages, including customer relationship management (CRM) and ERP, are increasingly being adopted under software-as-a-service (SaaS) model by the customers. According to research firm Gartner, SaaS-based CRM was worth $1.8 billion in revenues, almost 18% of $9.4-billion global market for CRM software.
For Indian IT firms, such as TCS, Infosys, Wipro and HCL, this offers a new opportunity to enhance proximity with the customers and also move away from traditional model of outsourcing, wherein they had dedicated offshore development centres for each customer.
“By offering services under our Flex model, we are able to bring down costs by up to 30%,” said Sangita Singh, senior vice-president and head of Wipro’s enterprise application services business. Wipro’s FlexDelivery model offers ERP software from SAP to customers such as Nokia Siemens.
At least two outsourcing consultants told ET on conditions of anonymity that around 10-12 ERP and CRM outsourcing contracts, each worth $50-100 million, are being discussed by customers, including steel maker ArcelorMittal, Philips and ABB.
“We, currently, have around 15% of application revenues coming from the Flex model, it can surely contribute around half of our total enterprise applications business,” she added. Wipro is moving some of its top customers who already have dedicated offshore centres to this model. Mr Singh declined to name the customers currently exploring this model.
Indeed, as more customers seek to reduce cost and move away from traditional time and material-based pricing models, Indian vendors will have to prepare for more such engagements. Delivering traditional application maintenance and services in its current form will not really take Indian tech firms too far, experts say.
India’s second-biggest software exporter Infosys is not far behind. The company is already offering Oracle’s PeopleSoft HR management software to two of its customers. “By saving software and hardware costs and with our reusable components, the total cost of ownership can be brought down by 25-30%,” said Ravi Kumar S, Infosys’ vice-president and delivery head for Oracle services.
The country’s biggest software exporter TCS currently offers enterprise services under SaaS model to around 60 small and medium business customers.
“This downturn will force vendors and customers to explore newer models, going forward, we will look at many applications to be delivered under SaaS model,” Maarten J de Vries, IT and supply management, member group management committee, Royal Philips Electronics told ET in a recent interview.
By asking vendors to manage, host and deliver a software application, such as enterprise resource planning (ERP), these customers are able to avoid large, complex outsourcing contracts and instead pay suppliers on the basis of number of transactions.
Popular business application packages, including customer relationship management (CRM) and ERP, are increasingly being adopted under software-as-a-service (SaaS) model by the customers. According to research firm Gartner, SaaS-based CRM was worth $1.8 billion in revenues, almost 18% of $9.4-billion global market for CRM software.
For Indian IT firms, such as TCS, Infosys, Wipro and HCL, this offers a new opportunity to enhance proximity with the customers and also move away from traditional model of outsourcing, wherein they had dedicated offshore development centres for each customer.
“By offering services under our Flex model, we are able to bring down costs by up to 30%,” said Sangita Singh, senior vice-president and head of Wipro’s enterprise application services business. Wipro’s FlexDelivery model offers ERP software from SAP to customers such as Nokia Siemens.
At least two outsourcing consultants told ET on conditions of anonymity that around 10-12 ERP and CRM outsourcing contracts, each worth $50-100 million, are being discussed by customers, including steel maker ArcelorMittal, Philips and ABB.
“We, currently, have around 15% of application revenues coming from the Flex model, it can surely contribute around half of our total enterprise applications business,” she added. Wipro is moving some of its top customers who already have dedicated offshore centres to this model. Mr Singh declined to name the customers currently exploring this model.
Indeed, as more customers seek to reduce cost and move away from traditional time and material-based pricing models, Indian vendors will have to prepare for more such engagements. Delivering traditional application maintenance and services in its current form will not really take Indian tech firms too far, experts say.
India’s second-biggest software exporter Infosys is not far behind. The company is already offering Oracle’s PeopleSoft HR management software to two of its customers. “By saving software and hardware costs and with our reusable components, the total cost of ownership can be brought down by 25-30%,” said Ravi Kumar S, Infosys’ vice-president and delivery head for Oracle services.
The country’s biggest software exporter TCS currently offers enterprise services under SaaS model to around 60 small and medium business customers.
“This downturn will force vendors and customers to explore newer models, going forward, we will look at many applications to be delivered under SaaS model,” Maarten J de Vries, IT and supply management, member group management committee, Royal Philips Electronics told ET in a recent interview.
For instance, European service providers, such as T-Systems, with capabilities to bundle enterprise business applications from SAP are already
winning more business. Wipro, along with EDS and T-Systems is among SAP services providers currently authorised to deliver such services as part of the Run SAP program.
“During the downturn, this model offers a quick and easy way to save costs, and having noticed that customers were moving towards platform-based services, we realised Run SAP could be a good way to help customers standardise their processes using SAP applications,” said Anja-Christina Bruehling, head of partner management — Active Global Support , SAP. “Apart from selecting a partner, customers are also free to operate RunSAP inhouse,” she added.
Philips will announce a new outsourcing contract with T-Systems, a European service provider, this week, Mr Vries said. “We will also announce SAP as a service as part of this contract,” he added.
“During the downturn, this model offers a quick and easy way to save costs, and having noticed that customers were moving towards platform-based services, we realised Run SAP could be a good way to help customers standardise their processes using SAP applications,” said Anja-Christina Bruehling, head of partner management — Active Global Support , SAP. “Apart from selecting a partner, customers are also free to operate RunSAP inhouse,” she added.
Philips will announce a new outsourcing contract with T-Systems, a European service provider, this week, Mr Vries said. “We will also announce SAP as a service as part of this contract,” he added.
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