Protecting margins a big worry for IT firms

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.

Has Microsoft Turned Into The New IBM?

Surfing the web today, I came across a very interesting interview on SeattlePi with Don Dodge, who was Microsoft’s Director of Business Development for the Emerging Business Team until getting laid off last month. During the interview, he revealed his opinions on Microsoft, their current situation and where they’re heading. He also revealed that he thinks “Microsoft is a lot like IBM was in 1985”, going on to say that “after 20 years they are losing the innovation edge.” This got me thinking; has Microsoft lost the ability to innovate after being the most dominative force in computing since the late 1980’s? And if so, why?

I think a key to the solution is the sheer amount of things Microsoft does. When you think of the number of markets Microsoft compete in, you can understand that it’s extremely difficult, maybe impossible, to dominate every market. Not only do Microsoft develop and maintain the Windows OS, they also compete in the market for smart phones with Windows Mobile; the gaming market with the Xbox 360 and internet search with Bing.

Microsoft only dominate one of these markets with Windows – even with competition from Mac OS X and Linux, 88.5% of the world’s population uses Windows on their PC’s, which is beyond monopolisation… Despite this, 62.2% of computer users are using Windows XP, which completely supports Dodge’s accusations that Microsoft aren’t innovating as much as they were before. Rightly or wrongly, Vista was never a favourite of consumers as it had a lot of bad press on and off the web. In my opinion,
Windows 7 is a solid operating system, and when I’m using Windows, I use Windows 7.

When comparing the progress of Windows to its nearest competitor, how has it advanced since Windows XP was released in 2001? When Windows XP was introduced to the world, Apple had just released Mac OS X 10.1, and compared to Microsoft’s monopoly, Apple wasn’t in a good position with many criticising 10.1 for its bad performance. The next time we saw a consumer OS from Microsoft, however, was in January 2007, and the results weren’t worth the 6 year wait for many…

In the same time, Apple had released Mac OS X 10.2, 10.3 and 10.4, with Leopard coming 6 months later. So what were Microsoft doing in those 6 years? To the average user, there wasn’t much reason to upgrade from XP to Vista, because people were all too familiar with XP – why switch to have software incompatibilities and an unfamiliar interface?

On the mobile front, having used all three main players in the smartphone market right now (Windows Mobile 6.5, iPhone OS and Android), I’d only consider using iPhone OS or Android. Microsoft’s got a lot of catching up to do, and has fallen behind Apple and Google in terms of innovation and ease of use.

Navigating around a Windows Mobile device often feels far too long winded, with menus and menus of choices it’s simply not as user friendly as the iPhone or Android, even with HTC’s custom interface. Add this to the numerous delays of Windows Mobile 7, there’s no way I’d buy a Windows smartphone right now.

Having gone from the innovator to the company playing catch up with every other major player, Microsoft needs a new direction to wow people again. They’re very much in the gaming market with the Xbox 360, and hopefully we’ll see some pushes towards a better search with Bing in 2010 – how about a consumer friendly surface-like device? Competition for Apple’s tablet anyone?

'BFSI is the next big thing in domestic outsourcing' - IBM India

BANGALORE: TEN years ago, the world’s biggest IT company then, IBM, did the unthinkable: it struck a deal with a company in India (Cadbury ) to take care of its IT needs. It was one of the country’s first domestic IT outsourcing deals. The rest, as they say, is history. More than a dozen such deals later — including the game-changing contract with Bharti Airtel — IBM is the king of the hill in domestic IT outsourcing. Recently,ET NOW’s R Sridharan caught up with Shanker Annaswamy, regional general manager of IBM India & South Asia, to talk about Big Blue’s journey so far and the road ahead. Excerpts from the exclusive interview:

Shanker, it’s been 10 years since IBM bagged its first outsourcing contract in India . It’s been a long journey. How do you look back on it?

1999 was indeed when we signed the first contract, but 2004 marked the biggest turning point for us — the outsourcing deal with Bharti. It was $750-million contract, and 2006 followed with Idea cellular and Vodafone. I think, we’ve done wonderfully well.

If you look at the last year and a half, every Indian IT vendor has been hit by the global downturn, especially in the financial services market. How has IBM in India coped with the downturn?

Given the global market conditions and the fact that large deals were not happening, we were looking at our successes here, and asking ourselves how we can replicate the successes beyond the telecom industry. I am very happy to share with you that we looked at customers beyond telecom, to customers like Amul and media companies like Sun TV.

You have a lot of Indian vendors now competing for domestic outsourcing deals. Wipro, for example, recently bagged the Aircel deal, which IBM was pitching for as well. How do you see the competition from India vendors?

It took some time for other competitors to look at, understand the model and then go and win one or two accounts. But if you look at the real strategy behind it, it’s not simple IT consolidation. It is your capability to bring in tools and asset-based services than labourbased services, and bring research to play.

You also have HP and Dell, which were traditionally hardware firms, getting into services. Are they a bigger threat?

Industry domain knowledge and capabilities are not built overnight. The differentiator for us is very clearly our integration: consulting and system and technology business like the mainframes and big computers, then the software business, which is an integrating business, then we have services end-to-end . Our ability to take a certain portion of the customer business and turn it into a profitable proposition for them is very big and it will take competition time to catch up.

But what are the other sectors apart from telecom and manufacturing that will open up to outsourcing within India?

BFSI area would be a potential opportunity for us to look at. Public sector will take time. Healthcare could be a huge opportunity, but it may take some time as well.

IBM doesn’t disclose its India headcount, but as I understand it’s 90,000 or even one lakh. How does this number split up?

Actually, we are 73,000-plus employees and we are growing. The large proportion of the employee population is in global delivery missions , including the global delivery and then the IBM Daksh BPO outsourcing processes. The rest of the business will be then the domestic business, research labs, software labs and other groups.

At what point would IBM want to de-risk its India strategy or do you think that’s not a concern?

There is no timeline by which we go. This base of 73,000 was built not on a certain number to be achieved or cut off, it depends on our customers, our clients, their projects, and their core competence and domain expertise that comes in. So, India continues to be a key component of this and I would expect it to grow.

Finally, before the global economy slipped into recession, there was a lot of talk about how India had become an expensive place for IT outsourcing. Is India still competitive?

I think so. We will continue to be so. Because India has a unique advantage of being a pioneer here and also it has a large skill base, and the track record. But we have to be careful not to sit on these successes but continue to train and skill our future workforce.

The next biggest worry for Mahindra Satyam is staff exodus

BANGALORE | HYDERABAD: O R N Suresh, the 33-year-old manager working on a British Petroleum (BP) project at Mahindra Satyam, the decision not to take up job offers from rival Indian firms has not really been a smart move. It was quite risky, to say the least, to continue working in a company which was witnessing a few contracts move to rival IT companies. Infact, after BP decided to shift projects from his company to TCS and Wipro earlier this year, things were not the same at Mahindra Satyam.

“We never had any issues with the delivery of projects, and even though I had an offer to serve at Wipro for another oil firm some eight months ago, I thought Satyam offered better job satisfaction,” says Suresh.

As Mahindra Satyam tries its best to regain the faith of customers, employees and investors, the company faces a daunting task. While the global recession ensured that voluntary attrition remained abysmally low, the improving business environment will soon witness rivals wooing the talent which is available. And they are sure to poach in on the highly skilled hands who are willing to jump the fence at Mahindra Satyam.

Some 400 professionals who are at present working for BP at Satyam will soon become redundant after BP completely shifts the projects to rival TCS and Wipro over the next few months.

Apart from customer attrition, many Satyam employees are also realising that the new management’s relentless focus on pruning the costs means far less job security than nine months ago.

“The Rajus were extremely good at dealing with people, whereas the Mahindras have created a lot of discomfiture in the organisation by driving away our senior leadership and imposing their decisions on us. This makes us feel like outsiders. But for the fraud, an average Satyamite will still prefer Raju to the Mahindras as an employer,” said a senior employee who is currently working for banking and financial services customers at Mahindra Satyam.
The Satyam scam doesn’t seem to have dented the image of B Ramalinga Raju, especially among the employees, who still repose a lot of faith in him and the previous management.

A worsening global economic crisis ensured that there were no jobs available for those seeking better options in the market. For hundreds of Satyam employees who were on the bench, the new cost-cutting strategies and tactics were not really very employee-friendly.

“You cannot really blame the new management - even Wipro was forced to lay off many of it employees during the recession,” said another employee who is currently working at the company’s back office division. However, many of the employees feel that the new management is not able to show empathy to the present employees the way the old Satyam management used to.

Perhaps it is this disconnect between the employees and the management which will work in favour of other IT companies who are eagerly waiting to recruit skilled hands willing to jump the boat. “We always thought Satyam was an over democratic company. It was a friendly company where even those on the bench was treated royally. Tech Mahindra has adopted a hire-and-fire policy and the employee satisfaction levels are very low,” said an associate with the Citigroup project.

Meanwhile, one of the biggest worries which Mahindra Satyam has to face is its fading popularity as an employer. And, whenever business picks up, the company may lose out to rival companies in acquiring new talent given the image it has conjured up in the market.

“I will never recommend anybody to join Satyam. Firstly, from a $2 billion company, it has been reduced to a mid-sized IT player. Secondly, the new management is yet to visualise and comprehend the scale of Satyam’s operations, employee and customer expectations. It’s like a cafe owner buying Taj Krishna. Moreover, with no big projects on the cards, I do not think anybody should risk their career by taking up a job there,” said a Merrill Lynch project head.

Large multinational technology firms such as Accenture and IBM, apart from domestic rivals have already started their recruiting campaigns. “The management’s toughest challenge now is to retain the workforce they have. With Accenture and IBM conducting walk-in interviews every Saturday, more than a quarter of Satyam’s associates’ resumes are circulating in these offices,” said a Mahindra Satyam employee working for an insurance customer.

IBM Launches Cloud Computing Lab

IBM said Thursday that it opened a research lab in Hong Kong dedicated to developing products and services for the cloud computing market. At the outset, the lab will dedicate resources to supporting IBM's online LotusLive offering.

IBM currently counts more than 18 million users of LotusLive, which offers Web-based access to e-mail, instant messaging, calendaring, and other collaboration tools. The service starts at $3.00 per month, per user.

IBM said the Hong Kong center will research and develop best practices around various issues related to cloud computing, including security, privacy, and reliability. The lab is co-located with IBM's existing China Development Laboratory, which employs more than 5,000 developers.

"As the first cloud computing laboratory in Hong Kong to serve as a global resource for cloud-based collaboration services, the laboratory marks a milestone for IBM and for the information technology industry in Hong Kong," said Dominic Tong, IBM's general manager for Hong Kong/China, in a statement.

"The opening of the laboratory demonstrates Hong Kong's advantage as a global hub for world-class information technology and online services and we are delighted that it aligns with the government's agenda of developing Hong Kong into a center of excellence in innovation and technology," said Tong.

Attendees at an event marking the lab's opening included Hong Kong Financial Secretary John Tsang, Commerce and Economic Development Secretary Duncan Warren Prescod, and IT Legislative Councilor Samson Tam.

IBM estimates the market for cloud, or hosted, computing products is growing 28% annually, and will increase from $47 billion in 2008 to $126 billion in 2012.

IBM Stays Tops as Server Market Stabilizes, Gartner Says

IBM retained its narrow lead over Hewlett-Packard in the worldwide server market as sales began to stabilize during the third quarter, Gartner said Monday.

IBM took 31.7 percent of server revenue in the three months to Oct. 31, up a fraction from last year, while HP's share stayed more or less flat at 30.2 percent, Gartner said. They were followed at a distance by Dell, Sun Microsystems and Fujitsu.

Server revenue overall dropped 15.5 percent from the third quarter last year, to $10.7 billion. But it was up by 10.2 percent compared to the second quarter this year, Gartner said.

"It is important to put the yearly declines into perspective," Gartner Research Vice President Jeffrey Hewitt said in a statement. The server market is "showing signs of stabilization as we move toward the end of 2009."

All the top vendors bar one saw their server revenue improve from the second quarter. The exception was Sun Microsystems, whose business has been hit by uncertainty surrounding its acquisition by Oracle.

Sun's server revenue was down 32.3 percent from the third quarter last year, much more than its main rivals, according to Gartner. It remained the top seller of Unix systems by volume, but its lead was pared down from a year earlier as shipments declined by almost half.

In terms of dollars spent, HP overtook Sun to become the second-largest Unix vendor behind IBM. HP grew its share of Unix systems revenue from 28 percent to 29.3 percent, while Sun's declined from 29.2 percent to 24.2 percent, Gartner said. IBM's share increased from 36.4 percent to 40.9 percent.

The Unix server market overall was worth $2.6 billion, a drop of 21.2 percent from the third quarter last year.

Industry-standard servers fared a little better. Sales of x86-based systems declined by 11.4 percent from last year, to $6.3 billion. HP retained its dominant lead, followed by Dell, IBM, Fujitsu and NEC.

Official: IBM US headcount down to 105,000. Down by 10,000 in 1 year

IBM's United States work force has been in decline for years, but it has recently shrunk more quickly.

News that IBM's American jobs were down to 105,000 came in a presentation to a congressional subcommittee by Maria Ferris, IBM's director of diversity, compliance and employee experience.

That means a decrease of 10,000 IBMers since the end of 2008, when it was 115,000.

Ferris' remarks were reported Nov. 16 as part of a pitch to relax some Fair Labor Standards Act provisions, which she said would increase workplace and time flexibility.

IBM has been cutting costs and raising profits. One way is "work force rebalancing," which involves shifting work around, often overseas, and U.S. downsizing.

"We've been saying that the offshoring of U.S. jobs would bring the IBM employee population down significantly, and I think we're seeing that now," said Lee Conrad, national organizer for Alliance@IBM, a workers' group based in Johnson City.

The Hudson Valley got a dose of downsizing this year. At IBM's East Fishkill plant, 340 jobs were cut, according to IBM documents filed with the state Department of Labor.

IBM cut about 100 to 120 jobs at its Endicott plant this year, Conrad has said, citing information from local employees.

Before the reporting act was toughened, other jobs at IBM plants were cut, however the company won't say how many.

No IBM spokesman in a position to comment could be reached. IBM has previously said it remains a major U.S. high-tech employer.

At the end of 2008, IBM had 398,455 employees globally, with the U.S. portion forming 28.9 percent of that.

Coming soon: IBM tech hubs at Bhopal, Nagpur, Jaipur

JAIPUR: IT solutions provider IBM is planning to expand its footprints in tier II and tier III cities with a bouquet of hardware, software andservices offerings primarily targeted at mid-market clients.

IBM Growth markets vice president Harish Krishnamurthy told ET that the company is soon going to set up its hubs in potential cities like Raipur, Bhopal, Bhubhaneshwar, Vizag and Nagpur. “These cities have great untapped potential.

By starting our hub in these cities we would be able to cater to the requirements of surrounding tier III cities through our partners under hub and spoke model. The small and medium enterprises offer great business opportunities,” he said.

At present, IBM has a direct presence in 22 cities across the country. The company has also appointed IT players Sequel Infocom and Icon Integrated services as the channel partners to sell IBM’s infrastructure services to clients. “These two partners will focus primarily on Rajasthan market. They will help us in enhancing our reach in the state by offering infrastructure services to clients helping them in areas of Green IT, security, business continuity, improved collaboration and communication among others,” he said.

IBM has also launched first of its kind service offering named IBM Express Remote managed Infrastructure Services (ERMIS) exclusively to be sold by its channel partners. “IBM cannot sell it directly to the clients. It has to be sold through our channel partners. It is designed to enable IBM business partners in providing their clients with remote monitoring, management and service reporting of their IT infrastructure,” said Vivek Malhotra, IBM vice president – North & East, General Business.

Apart from that the company has also launched a cost-efficient Scalable Modular Server Rooms (SMSR), which has been successfully implemented in Shree Cements. “This is also first of its kind in the country. Unlike other conventional servers, which take 6-7 months for installation, this data server takes shipment time of 2-3 weeks and just 3 days of implementation time. Also, it consumes 15-30% less power than other servers. The entry level model comes at a competitive price point of $50,000 which is almost 10% of any conventional server,” Mr. Malhotra said.

Dell-Perot to introduce ‘pay-as-per-use’ model

NEW DELHI: Dell-perot Systems, which bundles hardware and software solutions for offering low-cost services to hospitals and other healthcare companies, plans to replicate its American model for gaining more business in India’s $12-billion domestic market.

The company, which is already offering its pay-as-per use service to healthcare customers in the US, signed a 10-year contract with Max Healthcare earlier this year, bidding against domestic rivals TCS and Wipro, for Rs 90 crore.

At a time when the US is preparing to spend almost $46 billion on modernisation of its ageing healthcare systems, and even the Indian government has aggressive IT-enabled programmes, tech firms such as TCS, Infosys and Wipro will have to compete against Dell-Perot and IBM.

“Historically there was a software and a hardware side to an IT service. Today, companies are bundling both service capabilities into one and offering it as an integrated IT solution. It helps in reaching out to the customer faster and reduce overall IT cost,” said Mr Fickenscher.

Cloud computing for hospitals and healthcare service providers is expected to reduce their overall operational and capital expenditure by up to 30-40%. Computing through cloud, or delivery of software business applications through a given network allows customers and users to use a service without owning any hardware infrastructure or software licences.

“We have launched this model in the US and it has been quite successful. It will take some more time to get these services into India, as it requires deployment of appropriate IT systems and training people on the same,” said Mr Fickenscher.

The company is already in talks with several other hospital chains in the country to manage and control their IT infrastructure. Going forward, Dell-Perot will also look at government projects in the heathcare space aggressively.

India is among the four major growth markets for Dell-Perot, the others being China, Europe and the Middle-East. The company feels that there is a huge scope of providing cloud computing services — IT services over internet — largely to physicians in India, as they usually do not have access to data centres.

The company is expected to launch cloud computing services in India, China and the UK over the next 12-18 months and Latin America subsequently.

Experts such as Diptarup Chakraborti, principal research analyst at Gartner said Dell-Perot will be a bigger worry in the overseas markets for Indian tech firms.

“Dell acquired Perot largely to cater to the US market where it was loosing out due to lack of complete product portfolio. Since Indian IT services Infosys, Wipro and TCS focus primarily on the US and European markets, Dell will give a tough competition to them in these markets considering that Perot System is the largest service provider in the healthcare space worldwide,” he said.

Britain’s National Healthcare Services (NHS) programme is another opportunity for Dell-Perot to replicate its cloud computing model.

“BT has an ongoing contract with the government to provide IT services, specifically to around 37 trusts/hospitals. We are a subcontractor to BT in that project. However, the model on which the IT solution will be based is yet to be finalised. BT is having conversation on the same with the government and will finalise it soon.”