Wipro sees trouble ahead

Indian outsourcing firm Wipro has said quarterly net profit was 9% higher than the year before, but gave a gloomy forecast that "the bottom is not in sight"

Net income for the October to December quarter was 9bn rupees (£134 million), while revenue from IT services, which makes up the majority of the firm's operating income, fell 0.9% in the quarter and will fall another 5% in the current quarter, to $1.045bn.

Wipro's chairman Azim Premji warned "2009 will be a tough year" and likely to cause problems ahead. “2008 saw a fragile global economy, a bristle domestic security environment and a phobic investor outlook on corporate governance practices; 2009 will be a tough year,”he commented.  “Consumer profit is down significantly and leading indicators suggest the bottom is not in sight. This will impact all economic activity, leading to capital conservation and op-ex reduction. IT budgets for the year are likely to get finalised this quarter. Customers will decide quarter-by-quarter till they get certainty on macro-environment. In such tough times, all our stakeholders are impacted, be it customers, employees, investors or partners.

“Our customers are not looking for vendors, but for business partners, partners who know their priorities and collaborate with them. Challenging times differentiate great companies from good companies, and this is an opportunity that we want to take with both hands. I believe customers want a business partner to have four key strengths, and Wipro is well placed in all the four areas. Customers first look for one-stop-shop to reduce their overheads and managing relationships. A wide service portfolio covers consulting, application development and maintenance, R&D engineering, technology infrastructure services, package implementation, testing services and business process outsourcing. Our ability to provide integrated solutions cutting across multiple service lines positions us well among our peer group.

“Second, customers do not want fair weather friends who care only for their own interest. In 2001, we stood by our telecom and technology customers when some of our competitors looked elsewhere. We are in this business not just for this quarter or the next, but also for this decade and the next. Three, customers are looking for partners who can address their current needs of capital conservation and operating expense reduction, we are addressing this with our suite of offerings under process optimisation, application optimisation, infrastructure consolidation and emerging business model.

“Fourth, customers expect the partners to be financially strong and sustainable. While the past is not indicative of the future, we do have the experience in riding economic waves in our last six decades' history and coming out the stronger. We are, therefore, unique as a company so far as this is concerned. Finally, a relationship needs to be built on the foundation of the highest standards of integrity. This holds true not just for our customers, but for all our other stakeholders. We have always prided ourselves for setting the highest standards of business ethics in our dealings with all our stakeholders. We have built a strong culture which upholds compliance in letter and spirit.”

BPO is one growth area of opportunity. “We've really got the BPO business and the IT business working much closer together and, therefore, creating quite a few BPO-IT-type of opportunities, or integrated BPO-IT type of opportunities,” said Suresh Senapaty, chief financial officer. “Our focus has been to drive transaction processing business as against voice business and there has been substantial movement so far as that is concerned. While the BPO business in terms of revenue may not look exciting in context of the growth that we have had across some of the other service lines, but in terms of order booking it has been fairly healthy. We finalised quite a few, specifically for fairly substantial BPO deals, which are transaction processing deals this quarter and the order booking has been significantly ahead of what we achieved last year, despite this year being much more economically challenged.

“Clearly the budgets are going to be challenged next year and our feedback is that the CEOs want to do more for less. There is budget pressure, but it will probably be less than what we had planned for last year. I don't think there is going to be any substantial reduction in terms of the  quantum of transformation initiatives that the CEOs would expect. While budgets are frozen for the year, people will re-look at the budgets quarter-on-quarter. Typically, how well you've done in the quarter will determine how much you spend in the subsequent quarter. Therefore, it's going to be budgets which are lower, budgets which are challenged, and budgets which will be reviewed quarter-on-quarter.”

The recent problems encountered by Satyam and the scandals around it obviously present an opportunity for the likes of Wipro. “There are customers that are common to Satyam and us,” said Senapaty. “There are customers who have large programmes, who would be looking at business continuity and it's pretty much natural to expect that and those customers are also in touch with us in terms of their own business continuity plans. From our perspective, we are really not soliciting for the Satyam customer base, but you know where there are common customers, where there are crucial programmes and where they are looking for alternatives and where they are looking for business continuity. We are certainly are in talks with them.”