The recent results of global IT majors like IBM, Oracle, SAP and Accenture reinforce the view that the global IT services demand remains strong, and that demand remains balanced between the maintenance and discretionary segments.
These results also reinforce the prospects of Indian information technology majors such as Infosys and HCL Technologies.
“While (software) licence sales at SAP and Oracle are strong indicators of the prospects of the enterprise application services (EAS)/ package implementation (PI) segments for Indian IT vendors, order booking numbers at IBM and Accenture throw light on the trends in outsourcing and consulting spends,” said Motilal Oswal Securities Ltd ( MOSL) in its post- results commentary.
SAP is a comprehensive supply chain and operations process management software for enterprises, while Oracle provides the complete, open and integrated business software and hardware systems.
“A close look at the results of the global IT majors throws up some vital factors that support the positive view on Indian IT exporters . These include record software revenues at SAP, highest growth in license sales in nine quarters at Oracle, ‘Terrific’ growth in outsourcing order book at IBM and highest consulting bookings in ten quarters at Accenture,” said Kuldeep Koul, analyst at MOSL.
Stellar growth in software and licence sales of SAP and Oracle bodes well for EAS revenues of Indian IT majors. “Strong license sales growth at both SAP and Oracle bode especially well for Infosys (25.9 per cent) of revenue from PI/consulting) and HCL Tech (21.3 per cent of revenue from EAS). TCS lags Infosys and HCL Tech in the service line, with EAS contributing just 11.9 per cent of revenue,” Koul said.
“New license sales at SAP and Oracle drive PI revenues for Indian IT firms with a lag of a couple of quarters,” Koul added.
One key reason for the underperformance of TCS (the largest exporter of IT and IT enabled services from India) has been its historically high exposure to the auto vertical and a sharp deterioration in auto fundamentals, especially in the US, during the downturn.
In the October-December 2010 quarter, software revenue at SAP grew by a stellar 34 per cent year-on-year (YoY or compared to the same quarter of the previous year). Similarly, at Oracle new licence sales grew 21 per cent YoY for the quarter ended November 2010.
Oracle guided that strong growth (0- 20 per cent YoY) would continue in the February-ending quarter.
Total services signings of IBM, the global leader in outsourcing and consulting, were up 18 per cent YoY to $ 22 billion. Outsourcing signings were up 24 per cent YoY to $ 14 billion. IBM signed 19 deals of $ 100 million plus in the quarter under review, compared to 10 deals it signed in the previous quarter.
For consulting giant, Accenture, consulting orders (which include implementation/ SI) increased by 6.3 per cent quarter on quarter (QoQ or compared to the previous quarter) to $ 3.72 billion – the highest in 10 quarters.
These developments mean return of large and transformational deals and pick-up in discretionary segments.