Laliwala IT Services

Laliwala IT Services
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Wednesday, March 7, 2012

IT companies - America Securities and Exchange Commission last week

Indian based software services Information Technology (IT) firms getting a significant portion of their revenues from a single client are feeling the pinch as their clients based in United States of America and Europe are seeking to transfer some of their pain by reducing work volumes and billing discounts. Mid-sized Information Technology (IT) services firm Mphasis, which announced its latest quarterly earnings a few days ago, is being squeezed by its parent Hewlett-Packard, while Tech Mahindra is struggling to maintain the volume of work it gets from its largest client British firm BT Group Plc. Genpact is also seeing reducing business from General Electric (GE). The US financial crisis of 2008, the subsequent slowdown in that country and the ongoing economic uncertainty in Europe due to the sovereign debt crisis have adversely impacted Information Technology (IT) firms as their largest clients have become more cautious on their technology spends and look to extract the maximum out of every dollar spent. And the pain does not seem to be coming to an end any soon. In 2012, Indian IT industry is expected to grow at 11 to 14percent compared to over 16percent in 2011. "As we go forward we do expect some headwinds from BT in terms of revenue and margins," Sonjoy Anand chief financial officer at Tech Mahindra told analysts last month during the quarterly earnings call. Mphasis is looking for ways to reduce cost to compensate the reducing profitability from HP business. "Hewlett-Packard continues to be a drag," said Nitin Padmanaban of Mostilal Oswal Securities in his 2 March report on Mphasis. "Management is more focused on cost-containment efforts as a larger portion of the business driven by Hewlett-Packard continues to decline."
Not much different is the case of Genpact, which in its regulatory filing to the United States of America Securities and Exchange Commission last week said that it has amended its master service agreement with GE and expects price reductions if certain productivity commitments are not met. HP became the largest client for Mphasis after the US technology giant acquired Mphasis in 2008. Both GE and Tech Mahindra started off as Indian back offices of GE & BT, respectively and hence continues to have their erstwhile parents as their legacy clients. They have been trying to diversify their client base with varying degrees of success. To be sure, Genapact recorded a 27percent growth in its revenues in 2011 from a year-ago period, and saw a nearly 30percent growth in profits, aided by growth in non-GE business. "When you have large customer relationships and if their business is not ideal in terms of performance it will affect you as a supplier," said Ganesh Iyer, chief executive at Mphasis. "Unless we do something different this pattern will not change, we need to offer something different. Just giving price reductions will not work. We will work with Hewlett-Packard to take to their customers our specialized solutions." Tech Mahindra did not respond to queries from ET. In the most recent quarter, Hewlett-Packard saw its revenues fell 7percent while its profits saw a 44percent fall. Similarly, GE saw its sales decline by a billion dollars in 2011, while its profits managed to beat analyst estimates. BT saw a 5percent fall in sales while its earnings grew by 3percent, mostly aided by cost cutting efforts.

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