Search the Internet          Tips  Sites: Finance, Investment

Indian software firms getting back to mundane biz

Faced with lower global tech spending, Indian software companies, which had been trying to move up the value chain, are reverting to mundane work like maintenance and systems integration to keep the order books flowing.

Wipro Ltd, India's third-largest software exporter, drove home that harsh reality when it touted last week its $70 million systems integration order -- matching software and hardware requirements for a telecoms company of UK's Lattice Group.

Satyam Computer Services, India's fourth-largest software exporter, said its first-quarter business mix indicated an increase in maintenance and re-engineering projects. These accounted for 30 per cent of revenue in April-June, up from 23 per cent the previous quarter.

"Indian companies are going back to whatever they can get, as new application and discretionary spending is being cut," said an analyst with a foreign brokerage.

"The idea is to get new clients and big volumes."

While the Internet was hot, companies scurried to develop e-business software solutions. And higher up on the value chain were applications like embedded software for telecom equipment firms and software for wireless technologies.

With the dotcom collapse and the telecom equipment sector downturn, spending for new applications is on the wane.

"What we are saying is that as the technology business sees some downside, lets cater to telecom service providers and the new area of large-scale system integration to offset the downturn," Wipro's vice-chairman Vivek Paul said in a recent interview with Reuters.

The key word being "large-scale".

MUDDLING THROUGH

Satyam said after the results it was repositioning itself as a global solutions provider, either collaborating or competing with leading consulting companies and systems integrators.

"Systems integration involves some hardware reselling, some maintenance. It is a slightly muddled kind of business and none of the front runners intended to focus on it," said Ajay Mathrani, an analyst with ASK Raymond James.

"But if they have to achieve their 40-50 per cent growth rate targets, they will have to take up all kinds of projects," he said.

Scrambling for high-volume service contracts has become particularly important for a company like NIIT.

The software services and training firm -- India's largest computer education provider -- posted a shocking 93 per cent fall in April-June profit over the year-ago period. Yet it said the order book for its newly formed maintenance and modernisation practice had increased substantially during the quarter.

"The trend during the downturn by corporations has been to divert budgets to maintain existing core applications rather than build new ones or invest in emerging technologies," NIIT president Arvind Thakur said after the results.

GOING FOR SIZE

That the slowdown has started to take its toll on the growth of Indian software companies is evident from the April-June results released this month.

The cumulative net profits of six leading software companies rose 48.8 per cent and sales by 41.8 per cent over the year-ago period. But from the previous quarter, net profit fell 6.2 per cent and sales by 4.9 per cent.

The performance of key firms was mixed, but almost all said the pricing environment was "challenging" and indicated they were going to get after volumes, hoping to offset lower billing rates.

"There is no point chasing high margin, high value business if it is not coming," said Jayesh Parekh, analyst with SMIFS Securities.

"It is better to chase these bigger contracts and make a presence felt and hope to have the client offer you the high-value business when it is there."

Tell us what you think of this report