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Outsourcing Firms Quarter Results UP

|Includes: Affiliated Computer Services Inc. (ACS), BAC, CTSH, DELL, IBM, INFY, PER, WIT, XRX
By Chris V.

With the United States market still in slump, businesses project difficulties in profit increase in the next 7 years. Job cuts continue in the US and the rate of job creation of 25 per year is not sufficient to offset job losses in the next 5 years. On the other side of the world, Indian outsourcing firms show an opposite trend. Global IT service providers such as Infosys (NasdaqGS: INFY) which provides technical consulting, design and development of business solutions have been aggressively increasing their workforce. Last week, the company reported that in the second quarter it has hired 6,069 people offsetting the 4,521 employees it laid off in the same quarter. Tata Consultancy Service (NSE: TCS.NS)is also bullishly hiring with plans of hiring 25,000 people worldwide for this year 2009 and 90% coming from India. Also part of the bandwagon is Wipro Technologies (NYSE: WIT). In October 15 Wipro CEO Azim Premji said that the company is planning to hire about 500 local employees for a new service centre by Jun 2010. Manpower India Director Cherian Kuruvila also highlighted this hiring trend by Indian outsourcing firms saying, “Companies are expected to build a talent pool for upcoming projects as green shoots are visible”.

Indian Outsourcing Firms Quarter Results UP

Major Indian IT providers such as Infosys and TCS have both reported an increase in their revenues for this quarter. Tata Consultancy Services reports a net profit increase of 29 percent bringing its quarter revenue from 12.62 to 16.24 billion rupees which beat the analyst forecasts. Indian software outsourcing giant Infosys Technologies also posted an increase of 7.5 percent on its quarterly profit. Wipro is to announce second quarter results this week and is expected to post an increase in its quarter revenue as well given its profitable business with the government and in France. In an EETimes article, Wipro Technologies France CEO Christophe Martinoli said that the company plans to strengthen their business in France to double its revenues and staff in the next 18 months.

M&A Trends

In the US, technology manufacturers have been busy acquiring IT and business solutions and services companies to expand their markets and product lines. Enterprises are now moving towards operation and business consolidation. They want to deal with just one major provider to take care of all their needs. Imaging company Xerox (NYSE: XRX) bought Affiliated Computer Services Inc (NYSE: ACS) for $6.4 billion.  Dell (NasdaqGS: DELL) has agreed to buy Perot Systems Corporation (NYSE: PER) for $3.9 billion. IBM (NYSE: IBM) also expressed its interest in purchasing Wilshire Credit Corporation, Bank of America’s (NYSE: BAC) BPO division.

Mergers and acquisition is also becoming a hot trend in India for the same reason that these major firms intend to become a one-stop-shop. While in the US the trend is to acquire companies within the same industry where technology manufacturers merge with technology solutions and services providers, in India acquisition is motivated by the desire to tap into another industry particularly utilities, transportation, logistics, aerospace and government. HCL Technologies (NSE: HCLTECH.NS) acquired Axon for $720 million. Cognizant Technology (NasdaqGS: CTSH) bought UBS Indian back office service provider for $75 million.

Building Expertise in another Field

As competition toughens and the demand for outsourcing services in traditional major markets such as the US and Europe, Indian firms have geared more attention to their domestic market as it offers a big opportunity. The domestic market allows Indian outsourcing firms to engage in larger and more diverse projects enabling its workforce to up their skill set in the value chain. Infosys signed a project with Indian railways and Hindustan Aeronautics. This opens the door for the IT giant to the transportation and aerospace markets.

It is interesting to see these differing trends across the globe. Both worlds intend to increase their profitability by expanding their markets although what differentiates them is the kind of consolidation they pursue in order to become a one stop shop.

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