Reports

According to the 'Quarterly Index' published by TPI, about USD 100 billion worth of outsourcing contracts from all across the world are due for renewal in the next two years. Around 72 percent of these contracts are held by six major outsourcing providers - Accenture, ACS, CSC, EDS, HP, and IBM. The report further predicts the significant changes in the dynamics of the outsourcing market to make it difficult for these companies to retain their dominance over the market. The Index reveals that about 325 outsourcing deals are due for renewal during 2006 and 2007, accounting for 20 percent of the active contracts. Of these, approximately USD 50 billion worth of contracts are held by IBM and EDS.

The effect of increasing competition has already been witnessed over contract renewal awards. Around 53 percent of contracts in 2004 and around 70 percent in 2005 were competitive. Of these competitively bid contracts, around 80 percent in 2004 and 83 percent in 2005 have been bagged by offshore outsourcing services providers. The overall market share, for the contracts valued over USD 50 million, of the six major outsourcing providers also declined from 70 percent in 2003 to 49 percent in 2004 and further to 43 percent in 2005. TPI also observed that outsourcing deals are increasing in number and decreasing in size, simultaneously, over the past few years. Of the 293 contracts signed in 2005, about 70 percent were within the range of USD 50 million to USD 200 million, whereas this figure was only 65 percent in 2004.

Another independent poll of 10 brokerages estimated quarterly profits jumped between 8.3 and 56.9 per cent year-on-year for service companies, while product firm i-flex solutions ltd., in which Oracle Corp holds a 43 per cent stake, is set to show a doubling of net profit. Analysts said outsourcing is becoming 'strategic' -- implying lesser bigger deals with longer-term contracts.

A weaker rupee in the October-December quarter, when it slipped about 2.3 per cent against the dollar, could sweeten tech profits. But individual firms could see minor hiccups from salary increases and costs related to acquisitions or large deals.

Earnings began rebounding the previous year as IT firms recovered from an industry slowdown witnessed after the telecoms and Internet meltdowns between 2000 and 2003

A milestone was reached in the July-September quarter when Infosys, TCS and Patni Computer joined Accenture and IBM in winning a 5-year, $2.2 billion outsourcing deal with ABN Amro Bank.

General Motors is set to award a similar deal in the new year, with firms like Wipro among front-runners.

SBI Capital Markets Ltd said in its quarterly review that companies would focus on client additions and qualitative improvement while volumes surged. Profit margins could rise. 'We believe clients are looking at offshoring strategically and are likely to commit higher volumes in the near future,' it said.

Brokerage CLSA said Indian tech companies could now match the investor attractive stocks from other industries in a market where the broader benchmark index hit all-time highs last week.

'Within an India portfolio, techs appear to be re-claiming the earnings growth leadership position,' it said.'

The Christmas quarter also saw some active acquisitions. TCS spent about $50 million to buy two financial software firms, while Wipro committed about $80 million for two high-tech firms.

 Top Stories

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