Offshoring and Recession: Impact on Outsourcers

04.12.2008

HCL technologies saw an 18 percent revenue growth (the lowest amongst the biggies), and a 2 percent decline in net income. Net of attrition, about 2,000 employees were added in the quarter. Management indicated a budget freeze by customers and expects some clarity only by the January 2009 timeframe.

Satyam reported a strong 39 percent growth in revenues, but reduced its full-year USD guidance by 4 percent. Headcount addition guidance was also reduced by about 40 percent. Satyam echoed the observation that while theoretically, current pressures to cut costs should result in increased offshoring, in reality, that's not happening. Reason cited is hesitation by clients due to current economic uncertainty.

Cognizant saw its revenues increase 31 percent (despite having 45 percent of its revenues from the financial services segment) and the company maintained its full year outlook of 32 percent growth. On the flip side, management did admit to low visibility in the short term, and said that clients' budget-making process should get postponed by two to three months.

Barring a couple of exceptions, certain themes are common across Tier 1 players: growth rates much lower than the 35 to 40 percent witnessed previously, talks about large transformational deals, higher offshore content in projects and a slight shift from time and material to fixed price projects.

Let's go on to the Indian Tier 2 players. A high degree of variability exists here: from a 30 percent plus growth from companies like MindTree and TechMahindra to a muted 8 percent growth from Patni. MindTree and Polaris are both quite bullish still, while Patni has reduced its guidance owing to a general build-up of deferred decisions of cancelled projects. TechMahindra, the poster-boy of Telecom outsourcing has started seeing pressure in its business from BT, and NIIT is seeing IT career concerns among students in India. In general, companies have indicated a flat headcount growth. Polaris is seeing nice-to-have projects going/gone away, and must-have projects being tightened.