Archive for March, 2014

Re rise, polls to hit IT firms in Q4

March 31st, 2014

Accenture results show next fiscal to be positive
Indian IT firms are set to report dismal fourth quarter results on account of rupee appreciation and upcoming elections.

The results, which would start trickling in from April 15, are expected to softer than usual, analysts said.

While the January-March is seasonally muted, this time upcoming polls has slowed down India business as government contracts are being delayed, they said.

The rupee which has come down below $60 to a dollar is also impacting revenues as IT firms which earn mostly in dollars realise less in rupees.

Already, Tata Consultancy Services, India’s top IT firm, and Infosys have guided dismal fourth quarter.

Ankita Somani, IT analyst with Angel Broking, said, “We expect Q4 results to be slower than Q3 on account of rising rupee and elections impacting India’s business of all the IT players, apart from seasonality.”

The volume growth for top-tier IT firms is expected to be 0-3%, with TCS leading the pack, followed by HCL Technologies, Wipro and Infosys, she said.

“We expect TCS to report dollar revenue growth of 2.5-3%, while it is expected to be 2.3-2.8% for HCLT, 1-2% for Wipro and 0-1% for Infosys. Rupee appreciation is expected to have a 20-30 basis points impact on an average for Tier-I IT firms.”

Ashwin Mehta and Pinku Pappan of Nomura Securities expect HCL Tech, Tech Mahindra and Wipro to report a 3% quarter-on-quarter dollar revenue growth in fourth quarter, ahead of Infosys and TCS.

Last week, global consulting major Accenture reported second-quarter results that were largely in line with estimates, with good growth in both consulting and outsourcing revenues.

This has led analysts to be optimistic about growth for Indian software firms in the next fiscal.

Bhuvnesh Singh and Hitesh Das of Barclays in a report said that Accenture’s management increased its revenue guidance for this fiscal to 3-6% on year (from 2-6% on year in local currency) and raised expectations for new bookings in this fiscal to $33-36 billion (from $32-35 billion earlier).

“This should bode well for Indian IT companies given that approximately 60% of revenues for the four top companies originate from the US.”

TCS, too, expects fiscal 2015 to be better year than the current one and Infosys sees its new strategy for sales effectiveness leading to improvement in growth rates from mid-next calender year.

While the March 2014 quarter expectations for Infosys and TCS remain muted due to vertical and geography-specific issues, the Barclays analysts said this would be a short-term phenomenon.

Rumit Dugar and Pranav Kshatriya of Religare Securities said, “Overall, the read-through from Accenture is positive for Indian IT, given the strength in new bookings and tightening of the full-year guidance band.

We remain positive on the demand trend and continue to prefer large-caps in the Indian IT space.”


O’Farrell review says outsourcing work will save $2.2bn

March 31st, 2014

The state government could save $2.2 billion if it outsourced more of the design, construction and management of major works across the state, according to a review ordered by Premier Barry O’Farrell.Outsourcing28

A draft copy of the review by the independent pricing regulator, obtained by Fairfax Media, shows it was asked to look at more outsourcing across seven government agencies.

There is no economic argument that public services are delivered better by the private sector, or delivered cheaper.

The departments are: NSW Public Works, Health Infrastructure, NSW Land and Housing Corporation, the Transport Projects Division within Transport for NSW, Roads and Maritime Services, Infrastructure NSW, and Sydney Olympic Park Authority.

Mr O’Farrell requested the review in September from the Independent Pricing and Regulatory Tribunal but did not disclose the fact. The existence of the review emerged only on Friday after Fairfax Media obtained RMS’ submission among government documents about the planned WestConnex motorway through Sydney.

The tribunal’s draft review, which has also not been made public, shows the agency thinks RMS could save more than $900 million if it outsourced all of its road design, construction and maintenance across the state, apart from emergency management.

RMS told the tribunal it was already planning major job cuts. The agency expects to shed about 30 per cent of its staff, or 2000 jobs, in the next three years. But it is anxious about outsourcing more of its maintenance in rural and regional areas, where RMS remains a significant employer.

The tribunal also thinks Public Works could cut $128 million by more outsourcing, LAHC about $350 million, and Transport Projects about $30 million. It does not recommend more outsourcing for Health Infrastructure.

The review says the state government spends about $9 billion a year on capital expenditure, meaning ”even a small improvement in cost effectiveness could deliver significant savings for government”.

”The net present value of net benefits from our recommendations, calculated over 10 years, is about $2.2 billion,” it says.

”Our draft recommendations reflect that there is little economic reason for government to undertake design, construction and maintenance services.”

But the assistant general secretary of the Public Service Association, Steve Turner, criticised the review.

“There is no economic argument that public services are delivered better by the private sector, or delivered cheaper,” he said. “We question whether this report actually delivers any benefit for the people of NSW.”

RMS said last year it would outsource most road maintenance in Sydney. This is expected to lead to 700 fewer government positions, though many workers may shift to the companies that won the contracts.

IPART, which admitted it had not provided any public information about its review of government services, is scheduled to hand its final document to the government in May.

The IPART review also recommends a supercharged role for Infrastructure NSW to report on the performance of other government agencies.
Mr O’Farrell said the review was commissioned by the government and that they will consider it when they receive the final report.


Airtel to continue outsourcing to IBM in $550-million deal

March 31st, 2014

India’s largest telecom service provider Airtel is set to extend its outsourcing deal with the US-based IBM for another five years.

The deal is expected to be in the range of $550-600 million, making it the largest outsourced project by an Indian telecom company since the telecom scam broke four years ago.outsourcing1

A person involved in the negotiations told Business Line that the contract is expected to be signed in a few days as the earlier one expires this month. The previous 10-year contract was for about $750 million but was gradually scaled up to about $2 billion because of the accelerated growth of Airtel’s subscriber base. Spokespersons of both Airtel and IBM refused to comment on the deal stating that they do not discuss details of confidential client contracts.

The new deal will involve work in the areas of cost efficiencies, data services as well as better customer experience. The earlier deal was based on the revenue-sharing model and when the contract was signed, Airtel’s subscriber base was about 4 million which has now gone up to 200 million. The primary reason for outsourcing during the original agreement was to have an IT partner, which could help Airtel scale up. Initially, the deal was viewed with some scepticism because of its complexity, but eventually it turned out to be a benchmark for other telcos who were in the market to strike similar deals.

Changes galore

Once the deal came up for renewal, the drivers had changed completely. Airtel’s primary concern was no longer about scaling up the number of subscribers but about other needs such as data services, enhanced customer experience and bringing down costs. Also, the software and hardware component of the total outsourcing is no longer part of the new round of negotiations as they have already been set up and the requirements may be only incremental. Hence, the deal size will be between $100 million and $125 million a year compared with about $200 million earlier.

The earlier deal, signed in 2004, was for a period of 10 years but Airtel had the option to walk out after five years. Both the companies are learnt to have decided to stick to the same parameters and keep the tenure of the contract initially for five years.


India, China still the top out sourcing destinations

March 31st, 2014

India is the clear global leader by revenue, while China is the most serious challenger by scale, according to a study of nine Asia-Pacific (APAC) countries as potential offshore service locations.Outsourcing30

Bangladesh, Indonesia and Vietnam are continuing to gain regional traction for offshore service delivery, while more mature countries, such as Malaysia and the Philippines, are refocusing on their core capabilities. The capabilities are higher-end IT infrastructure, help desk, application and business process services, the study by Gartner said.

Historically, cost attractiveness, quality of service and scalability were key drivers for using Asia as an offshore outsourcing destination. However, in the last few years, growing concern about high inflation, attrition and quality lapses in offshore and nearshore locations have been driving chief information officers to consider alternatives such as low-cost onshore sourcing and sometimes crowd-sourcing.

Despite these trends, India and China are still among the most popular destinations for offshore services. Over 48 per cent and 45 per cent of clients surveyed in 2012 were using these countries for nearshore or offshore outsourcing respectively.

Countries in APAC offer cost-competitive, typically stable and scalable locations for offshore IT and business process services, but Latin American and Eastern European countries now compete more aggressively for offshore deals, it said.

The currency fluctuations and rising delivery costs are also an issue for Asia, it added.


The Income from Service Outsourcing Doubled In February

March 31st, 2014

Sources from Wuhu Bureau of Commerce, the newly increased employment in service outsourcing reached 521 in February, getting contracts of $82.661 million, up 127.2%. Contracts worth of $55.2128 million were executed in February, an increase of 154.66% over last year. 366 were newly employed in the Service Outsourcing Park.Outsourcing29

At the beginning of this year, Wuhu Service Outsourcing Park was listed as a model unit in Anhui province. About 130 professional enterprises were in the Park, such as Three Squirrels, Perfect World, China Software, Joyin Tech.


Accenture Revenue Grows But Misses Estimates

March 28th, 2014

Accenture ACN -5.03%  PLC said its fiscal second-quarter revenue grew as the consulting firm benefited from improvement in its outsourcing business.Outsourcing28

However, shares slipped as the top line met the company’s own guidance range but was well below analysts’ more bullish predictions.

The company said it faced pricing pressures and higher payroll costs, along with lower margins in the early stages of a few large contracts in the period.

The consulting company, which competes globally for contracts with technology giants like International Business Machines Corp. IBM -1.45%  and Hewlett-Packard Co. HPQ -1.30%  , has posted mostly improved earnings in recent periods and has seen strong revenue growth in its outsourcing business. Accenture was tapped in January as the lead contractor to fix the troubled insurance marketplace set up under the Affordable Care Act, replacing another contractor.

The company also raised its full-year earnings forecast, now seeing $4.50 to $4.62 a share, from its prior view $4.44 to $4.56. Revenue is now expected to grow 3% to 6%, from its previous estimate of 2% to 6%.

For the current quarter, the company estimates net revenue of $7.4 billion to $7.65 billion, compared with estimates of $7.56 billion.

For the period ended Feb. 28, Accenture reported a profit of $671.3 million, down from $1.1 billion a year earlier. On a per-share basis, which includes income attributable to noncontrolling interests, earnings fell to $1.03 from $1.65.

The year-ago results included benefits of $243 million related to prior-year U.S. federal tax liabilities and $224 million from a reduction in reorganization liabilities. Excluding those gains, last year’s earnings were $1 a share. Analysts predicted $1.04 a share for the latest period.

Net revenue grew 1% to $7.13 billion, in line with company projections of between $6.95 billion to $7.25 billion. Analysts polled by Thomson Reuters were expecting $7.21 billion.

Consulting revenue fell about 1% to $3.7 billion, while outsourcing revenue increased about 4% to $3.43 billion.


Lamberts announces axing of INTO outsourcing plans

March 28th, 2014

Koen Lamberts, the University of York Vice Chancellor, took to his new blog today to announce a new University Strategy for teaching and research, and to assure students that the condemned outsourcing plans will not take place.Outsourcing27

Lamberts said in his blog post; “As some of you know, we have been considering establishing an INTO Foundation College on our campus, offering international students a pre-degree year.

After careful consideration, the Senior Management Group took the decision on Wednesday not to take this proposal any further. I want to thank all colleagues who have invested time and effort in investigating the proposal and helping us decide whether it was the right development for the University.”

Kallum Taylor, YUSU president, made it clear on Facebook that “[YUSU] never opposed it” but that they “were aware of the risks” of outsourcing services using the INTO scheme.

He commented that it “could have been a high quality asset”. Taylor assured students that; “This does not in any way, shape or form mean we are going to stop demanding to add much needed services, retail and study space to Heslington East. Constantine is on the horizon now… And the needs are stark enough… We’ll keep going and we still have backing from big players in the higher echelons of Heslington Hall.”

Student activists, and the University of York UCU however, condemned the University’s INTO plans from the beginning. The University of York UCU commented;

“UCU was very pleased to receive the information from the Vice-Chancellor’s office that the University will not now be going into partnership with the private education provider INTO.

As far as UCU is aware, there will not be any re-emergence of the bid and consequent consideration in the future, although there is of course no guarantee.

A formal YUCU statement will follow.”

Other Universities around the country have protested similarly about outsourcing of work, most notably at the University of London Union, who are taking a stand against the outsourcing of cleaners, and the University of Sussex Students’ Union, who have been protesting outsourcing for some time, using demonstrations including an occupation.

Kallum Taylor will blog on the matter tonight.


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