From:	Baroni Limited [baroni-limited@tiscali.it]
Sent:	29 April 2007 16:05
Subject:	Baroni Limited - Offshoring Newsletter' - 14/07

Importance:	High
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TPI Index shows dramatic slowdown in outsourcing contract growth in the Americas
Global outsourcing contract awards got off to a much slower start this year than traditionally seen in the first quarter, portending a softer outsourcing market for all of 2007, according to the TPI Index.  Broader market activity -- commercial contract awards valued at total contract value (TCV) greater than $50M -- in the Americas was down by both number and dollar value from the previous quarter, as well as from the first quarter of 2006.  The 27 contracts awarded in the Americas during the first quarter represented the fewest quarterly contract awards since 2001.  TPI projects modest growth in annualized revenue for 2007, driven largely by ITO as BPO falls off its pace.
The slowdown in outsourcing contract activity in the Americas reflected the global market: The 68 contracts awarded in the quarter for all markets had a total contract value (TCV) of $17.6Bn, which is down from 99 deals in the prior year’s quarter -- an all-time record for a first quarter -- for a total value of $25.6Bn.  The TCV in the most recent quarter was the lowest seen in any first quarter of the past five years, and the value of deals is getting smaller in yearly dollar terms, too.  In the first quarter the annualized contract value was almost $3Bn, down from $4.3Bn for the same quarter or 2006.
Peter Allen, partner and managing director of Market Development at TPI, explains that the results show a continuation of trends established in last year’s second half and point to a reorientation of the marketplace after years of mega-deals.  'Organizations are engaging in shorter-term deals with smaller contract values because they want best-of-breed solutions,' Allen says.  'We are advising our clients to strive to align their sourcing needs with their business strategies and to consider the maturity of the service provider marketplace.'
BPO growth slows down
The downturn in overall outsourcing contract activity is exemplified in the decline of Business Process Outsourcing (BPO).  This quarter experienced the smallest number (29) and lowest TCV of BPO contracts greater than $25M being awarded in almost five years.  The BPO share of the broader market TCV was down 50% quarter-on-quarter and 66% year-on-year.  The adoption rate of BPO has hit a soft patch and is expected to grow at only 2% year-on-year, which is well off the double-digit pace of prior years.  Partly this is due to customers’ concerns about whether BPO is meeting their needs.  Also, buyers are prolonging their decision making on some processes, particularly as they wait to hear more positive reviews from the early adopters of Human Resources Outsourcing (HRO).  This trend is expected to continue throughout 2007, with the marketplace becoming more competitive as provider capability expands in 2008 and beyond.
BPO is now growing at a rate less than that of Information Technology Outsourcing (ITO).  While ITO is a relatively flat market in the Americas, there was an increase in managed network services (MNS) outsourcing due to new technology services such as Voice over Internet Protocol, or VoIP.  On a relative basis, Europe saw more contract activity than the Americas with the European market showing signs of growth due to a significant number of IT outsourcing deals underway in the region.
Contract restructurings
The Index also revealed a shift in the prevalence of contract restructurings.  Restructurings were a major part of the market during the past two years; however, the pace has slowed dramatically in the first quarter of 2007.  This quarter, 12 out of the 68 contract awards were restructuring-related valued at almost $3Bn, compared with 19 contracts restructured worth $7.5Bn in the first quarter of 2006.  Overall, the number and TCV of contract restructurings have declined during the past three quarters.  TPI links the decline to incumbent service providers adjusting the scope and terms in advance of the natural end of the contract.
'Even as the overall market slows, major service providers maintained their relative market shares in the latest quarter and there is a more diverse base of incumbent providers with contracts up for renewal,' Allen noted.
Outlook for 2007
Despite a soft first quarter overall, TPI’s projections still show modest growth in annualized revenue for 2007 compared with 2006, driven largely by the lack of significant large-scale contract terminations in recent quarters.  The first-quarter data provides some visibility into the annualized revenue that service providers will recognize in 2007.  Despite the slow start to the year, annualized revenue should increase modestly in 2007 by about 3.9%, driven by a 4.4% year-on-year increase in ITO.	

 	
 Top Stories	
 	
Biotech CEOs expect increase in outsourcing
Ernst & Young (E&Y) surveyed 400 biotech company executives in the US, Europe, and Canada, representing a mix of early-stage companies and mature or newly maturing firms - as part of its annual global biotech report.  Biotech executives say they will increasingly rely on outsourcing for key drug development areas in the next two years.
Financial Services Authority outsources IT to Xansa
The Financial Services Authority (FSA) has chosen Xansa to support and enhance its core IT applications.  This is the first piece of work which the FSA has outsourced to Xansa under the Applications Development Framework agreement signed in August 2006.
FSA signs £81m outsourcing deal with Fujitsu
The Financial Services Authority (FSA) has awarded a £80.8M ITO deal to Fujitsu Services under which the latter will provide various core IT services including management of IT infrastructure (includes hosting of about 350 servers), network management services, and desktop support services (for about 3,200 desktops).  The deal also entails FSA to transfer about 100 employees to Fujitsu.
BEC, TOPNORDIC In Outsourcing Pact
BEC (Bankernes Edb Central) and TOPNORDIC, a provider of IT infrastructure solutions and products in the Nordic region, have inked an outsourcing agreement, effective 1 May 2007, regarding delivery of hardware and standard software, as well as development and operation of the decentralised IT infrastructure at BEC's 73 member banks.
Royal & SunAlliance signs 10-year contract with IBM
IBM will operate and support Royal & SunAlliance's entire IT infrastructure, including its mainframe and midrange servers, desktop PCs, and e-business systems.
TietoEnator signs major telecom agreement with Siemens IT ...
TietoEnator has signed a major agreement with Siemens IT Solutions and Services regarding the streamlining of business critical and customer-related processes and services for mobile telephony (Mobile Business Support Systems Application Operation services).  This is the extension of an agreement TietoEnator signed with Siemens in July 2006.
BNG Awards Outsourcing Contract Renewal to Ordina
Bank Nederlandse Gemeenten (BNG), a Dutch bank, has awarded a three-year Business Process Outsourcing (BPO) contract extension to Ordina.  BNG will outsource all its business processes including payment transaction services and ICT support services to Ordina.  The deal also entails BNG to transfer its 80 employees to Ordina.
Vodafone appoints Accenture for implementation of ERP system
Vodafone Group, a U.K.-based mobile operator, has awarded an outsourcing deal to Accenture, a Bermuda-headquartered technology, outsourcing and consulting services provider.  Accenture will support Vodafone’s global Enterprise Resource Planning (ERP) system.  The financial terms and duration of the deal have not been disclosed.
Philip Morris International selects ARINSO for outsourced payroll ...
ARINSO International announces that it has been selected to provide payroll and time management services to Philip Morris International.  ARINSO will supply payroll and time management services in respect of over 20,000 employees within Europe, Eastern Europe, Middle East and Central Asia.	
 	
 Service Provider News	
 	
Capita Group moves into hedge fund administration business
The Capita Group has entered the hedge fund administration business through the acquisition of Gibraltar based Global Fund Administration Limited (GFA)....
SAIC wins Pacific contract from Air Force
SAIC has won a 5-year, $394M support services deal with the US Air Force's Pacific Air Forces (PACAF) to offer various engineering and technical support services supporting PACAF command, control, computers, intelligence, war-gaming, and force protection.  These services will be provided from Hawaii, Alaska, Guam, Japan, and Korea.
Serco selected for $200m Navy contract
Serco Group has won a 5-year, $200M engineering services deal from the US Navy's Space and Naval Warfare Systems Centre (SPAWAR).  The company will offer various services including program management, engineering design, and installation support services to SPAWAR for its systems called command, control, communication, computer, information, surveillance, and reconnaissance (C4ISR).
TCL BT to provide Global Managed Services to Ciba Specialty Chemicals
Under the terms of the agreement, BT will provide a broad package of managed ICT-services to Ciba's operations around the world.  This includes deploying a global IP telephony solution running across a BT managed LAN and WAN service, a global IT security solution and a flat rate voice service.
TCS reaches $4.3Bn in revenues for 2006-07
Tata Consultancy Services has registered a 41% year on year increase in its revenues to reach $4.3Bn in FY 2007.  The net income of the company witnessed a growth rate of 43% over FY 2006 to reach $950M in FY 2007.  The company witnessed an 8% quarter-on-quarter increase in its 4Q 2007 (ended March 31, 2007) revenues to reach $1.2Bn.  The net profit of the company stood at $270M in 4Q 2007.  The company added 43 new clients during the quarter.
Wipro reports 42% rise in net profit, sees strong 2008
Wipro has reported a 41% increase in its total revenues for FY 2007 to reach INR 149.43Bn.  The net income in FY 2007 was INR 29.17Bn, reflecting an increase of 44% over FY 2006.  Revenues from the global IT services and products for FY 2006 stood at INR 110.74Bn, reflecting a 38% increase.  The net income for 4Q 2007 has increased at a rate of 44% year on year to reach INR 8.61Bn.  The total revenue for the quarter stood at INR 43.34Bn.  The global IT services and products revenue for the quarter was INR 30.42Bn, reflecting a year on year increase of 32%.  The company expects its 1Q 2008 revenues from this segment to reach INR 711M.  During the quarter, the company added 44 new clients to its IT services and products portfolio.
Satyam Posts 35.3% Revenue Growth
India’s fourth largest IT services firm, Satyam Computer Services, has registered a 35.3% growth in its revenues during fiscal 2006-07, meeting the growth expectations.  The company earned revenues of Rs.64.85Bn, a growth of 35.3% over fiscal 2005-06.  The total income was Rs.66.68Bn, an increase of 35.8% over last fiscal.  The net profit after tax was Rs.14.05Bn representing a growth of 43.1%.
HCL TECH REGISTERS 44% INCREASE IN REVENUES
HCL Technologies has reported a 44.1% year on year increase in revenues to reach $362.4M in 3Q 2007.  The net income of the company at the end of the quarter stood at $76.2M as compared to $43.2M in 3Q 2006, reflecting a year on year increase of 76.3%.  The company recruited 1,832 professionals during the quarter taking the total employee strength to 40,149.  The company's BPO division registered a 41.8% year on year increase in its 3Q 2007 revenues to reach $49.7M, while the core software and infrastructure services segment of the company reported revenues of $312.6M in 3Q 2007.
Cybernet-SlashSupport (CSS) received funding worth $25M from Goldman Sachs
The funds will be used to make additional investment in CSS' global delivery infrastructure, on recruitment and training, to expand sales and marketing, and pursue strategic acquisitions, the company said in a statement.   The company has close to 5,000 professionals with offices in the US, Europe and Asia, including offshore delivery centres in Chennai and Coimbatore	

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