IT spend of Indian firms likely to feel US recession heat

Friends, let's discuss the IT stocks here. Below is the latest news on IT that I got from economictimes.
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NEW DELHI: Even as the $40 billion IT export services industry waits for fresh IT budgets from global companies, one thing is clear: there will be cost pressure on IT.

With a sentiment of recession in the US, which accounts for over 60% of the business, top industry honchos believe that IT intensity (that is, spends on IT as percentage of overall revenue) and discretionary budgets will see a downward trend. That is, Fortune 500 and other companies may reduce overall IT budgets marginally and are unlikely to commit to new systems upgrades. Global clients will expect services players to deliver more bang, without offering more bucks.

IT spends as a percentage of revenue vary from 3.5% in manufacturing companies, 5-6% in global retail chains to about 9.5% in the banking industry. These could see marginal decline and companies will hold on spends on new IT deployments.

Says Nasscom president Som Mittal, "There is no immediate concern on the demand side but we are cautious. On the one hand pressure on companies will
lead to more outsourcing and on the other hand a long drawn recession could have a sever impact on the IT companies, particularly the smaller ones who
don't have a niche offering but are simply `me-to' kind of companies.''

While demand side concerns will be clear once the IT budgets are out—expected later this month—most honchos believe that the banking sector reeling under the pressure of sub-prime and mortgage crisis could see IT budgets getting tightened. Says HCL Technologies CEO Vineet Nayar, "What impact a US slowdown will have on IT budgets is not clear as yet. But I do see IT budgets related to banking, credit card, mortgage space getting impacted. Contracts could be structured in a manner where clients seek to reduce IT intensity. Clients might not increase IT spends irrespective of volumes or revenues going up.''

Large IT services players will be able to cope with tighter client spends, but it's the smaller IT companies which will face the heat. Small and medium enterprises with commodity type offerings will find the business unsustainable. ``There are concerns but as of now, position holds,'' says Wipro Technologies enterprise solutions division president Sudip Banerjee.

Adds Infosys Technologies CFO V Balakrishnan, "Lower spending on IT by clients and limited volumes growth (of IT) could impact one or two quarters.
But at the same time there are several large opportunities in the applications, development maintenance space and package implementation across all industry verticals.'' For the IT services players already impacted by a 14% rupee strengthening (against the dollar), IT budget cuts by clients will force them to offer greater value. Larger spends on training, R&D, a focus on consulting and higher value services could be the only way out for the services players.

Techies like the power sector will see a correction.

Front page news is , it's going great for the IT and BPO, no concerns currently, back page news in smaller font hundreds get fired for "performance problems"

IT firms to cut allowances of staff abroad

Faced with imminent recession in the United States, Indian IT services companies with major exposure to the North American markets are likely to cut the onsite allowances of employees deployed at clients' offices abroad by 25 to 30 per cent from April 1, 2008.

According to informed sources, leading Indian IT service providers like Tata Consultancy Services, Infosys Technologies and Wipro have launched independent studies to arrive at the revised "per diem" (daily rate of payment) for onsite employees in a bid to cut costs. The move follows IT majors like IBM, TCS and ***** weeding out staff for "poor performance".

Each IT company has a different method of paying the salaries of onsite employees. Some companies, for instance, deposit the basic salary into the employees' account in India and pay a per diem rate towards their daily expenses.

Infosys pays a per diem of $45 (around Rs 1,780) currently to its onsite employees. Now, there is a proposal to reduce it to $35 per day (around Rs 1,380) -- a Rs 400 cut per day -- according to sources.

A spokesperson for Infosys said, "As of now, there is no such proposal. We will disclose the details of the changes, if any, once the compensation given to employees is reviewed at the end of the fiscal year."

However, a few employees of Infosys admitted to having been informed that there could be a reduction in per diem for onsite employees in the US.

"Earlier, most of us could make a saving from the per diem allowance. If it is reduced to $35 per day, we will not be in a position to do so and onsite postings will not be attractive anymore," an Infosys BPO employee said.

The move is likely to have a major impact on employee morale as their earnings from temporary stints abroad, rather than the Indian salary, provide the icing on the cake.

Wipro, on the other hand, is hiring more local talent at client locations to reduce deployment of staff from India for onsite assignments.

Recently Wipro Chairman Azim Premji had said: "If we hire people locally, it will displace people we send from here on H1B visas. So net-net, it will not mean an extra cost to us." If this happens, there will be fewer plum jobs for the boys in India.

TCS pays Euro 1,900 per month to each onsite employee in Europe. "We have been told that the per diem rate for the US is being revised. But the per diem for onsite employees in Europe will not change," a TCS employee said on condition of anonymity.

European IT services companies operating in India too are planning to reduce the per diem rate. Logica CMG -- which has deployed a large number of Indian employees on site for clients in the Netherlands, Belgium and the UK -- plans to cut the per diem rate by 30 per cent.

At present, it pays Euro 49 for onsite employees in the Netherlands and �35 in the UK as per diem.

"We have been told that a study is on to bring down the per diem rate from the next fiscal," a Logica CMG employee stated.

Infosys is also looking at other markets for growth in an effort to reduce its dependence on the US.

During the third quarter results announcement, Infosys CEO S Gopalakrishnan had said: "Over a period of time, we want to bring down the percentage of overall revenue from the US to close to 50 per cent and raise the percentage in the rest of the world -- to 20 per cent in Europe and 20 per cent in Asia Pacific including Japan." Though nominally, onsite workers in Europe or Japan earn more (in terms of the rupee value of the daily allowance), the cost of living in these geographies is higher than in the US.

http://www.rediff.com/money/2008/feb/18cut.htm

*****! asks 45 staff in Bangalore to quit

Close on the heels of IBM and TCS asking staff to leave on account of poor performance, *****! India, it is learnt, has shown the door to 45 full-time employees across all levels.

Though a spokesperson of *****! India refused to comment on the development, highly-placed sources within the company claimed that it was a routine "trimming process" and more "poor performers" would be sacked.

"Not only are contract employees being sent back, even full-time employees
are being asked to quit. Wherever the company is seeing surplus headcount,
it is being reorganised. Eventually, more than 100 employees may be asked to quit but performers will be retained," the sources added.

A few days ago, Microsoft made a bid for *****!, and the sacking has shocked many employees in the Bangalore office. "This move has taken us by surprise. In fact, recruitment has been very slow ever since Microsoft made the bid," a senior employee said.

Set up in 2000, *****! India, a subsidiary of *****! Inc, provides internet
services, technological tools, and marketing solutions for business both in
India and abroad.

Apart from taking care of the *****! India portal, the company operates an
R&D centre in Bangalore. It employs close to 1,000 people in the India
operations. IBM, which has 73,000 employees in India, recently laid off 500 to 600 freshers and is working on ways to certify the skill levels of its
employees. Similarly, 500 people were asked to resign from India's largest
IT services provider, TCS.
http://www.rediff.com/money/2008/feb/14*****.htm

Not sure why the name of the company for which Microsoft recently placed a bid of $44.6BN and the company rejected is getting encrypted to *****

IT firms to hire 20,000 in W Bengal

The information technology sector in West Bengal is likely to see addition of 20,000 jobs in 2008. The state currently has about 300 small to big sized companies and employs 55,000.

IT majors like Zensar Technologies, HCL [ Get Quote ] , IBM, Cognizant, PWC, Capgemini, Wipro [ Get Quote ] , Genpact, as well as the IT department of the West Bengal government, have lined up investment in excess of Rs 5,000 crore (Rs 50 billion) this year in setting up new centres and offices, coupled with manpower addition.

According to the companies, factors like excellent resource pool of highly skilled manpower, supportive business environment and low operating costs, have motivated them to escalate investment and operations in this part of the country.

Interestingly, a recent study by brokerage firm Edelweiss Securities estimated nearly 40 per cent rise in fresher salaries on IT firms over the next two years as multinational companies are planning to add over 1 lakh (100,000) personnel in India by 2010.

Global IT companies will add around 1.08 lakh (108,000) employees in India by 2010, by increasing the headcount to 2.73 lakh (273,000). This would be a 65.25 per cent increase from the 1.65 lakh (165,000) employed by the end of 2007.

According to Ganesh Natarajan of Zensar Technologies, it is looking at land in Kolkata to set up a 1000-people unit here.

"We have about 4,100 people in all. We are now looking at land in Kolkata, Jaipur and Indore to set up base," said Natarajan.

IT and technology company HCL is looking at setting up a 1000 people unit in Kolkata.

HCL recently bagged 1.5 acre for Rs 1.8 crore (Rs 18 million) in Kolkata.

"The centre would be up and running by 2008," informed Ajai Chowdhury, chairman and chief executive officer of HCL.

HCL, which has 5000 employees in India right now, plans to employ about 1000 at its centre in Kolkata.

HCL's Kolkata centre is in sync with its plans to set up regional bases all over India, w ith local employees, to cater to places in and around the area.

HCL's Kolkata centre would be a system integration centre and would offer consultancy services.

With new services and sectors opening up, Cognizant Technologies is also looking at doubling its employee strength and even opening new offices to tackle more clients and contracts. It is setting up a new centre at Bantala in West Bengal over six acres.

Cognizant's employee strength will be increased by about 15 per cent. It has about 4,500 employees in Kolkata at present.

Genpact, which manages business processes for companies, will employ 7,000 people in Kolkata, making it the company's third largest centre after the national capital region and Hyderabad.

Genpact recently signed an agreement to acquire more than seven lakh square feet of space at Infospace, an IT/ITES special economic zone being developed by Unitech Hitech Structures.

Genpact started its operations in Kolkata in September 2004 and currently employs around 700 people.

Genpact has recently also been allotted 12.145 acre by the Orissa government.

Wipro BPO would add 500 recruits in Kolkata in about six months from now.

Centres like Delhi and Pune had over 3,000 people, while Kolkata had approximately 2,900, and Mumbai nearly 5,000 employees.

Kolkata as a centre grew at 100 per cent over last year, according to V Anandkumar, vice president, people supply chain and employee branding, Wipro BPO.

At the same time, Wipro Technologies, which has about 100 employees in Kolkata right now, plans to recruit 15,000 software professionls in its proposed development centre at Bhubaneswar. Besides, the company also proposes to set up a Global Training Centre in Bhubaneswar.

The construction of the centre is expected to be completed within 2008. The proposed GTC in Bhubaneswar is expected to provide training facility to about 3000 persons.

PricewaterhouseCoopers, one of the largest professional services companies in the world, expects India revenues to double in the next four years on the back of multinational companies setting up shop in India as well as Indian companies looking at expanding overseas.

At present Indian clients contribute 40 per cent to PWC's overall revenues earned by its advisory services while non-advisory revenues from Indian and overseas billing are split around 50:50.

Doubling of revenues would also mean an increase in PwC's manpower strength in India. PwC's overall manpower strength in India is around 4,500 right now and this would be doubled in the next four years.

PwC's consulting business has about 800 employees right now which will also be doubled. PwC's Kolkata centre has about 2,000 employees.

Capgemini Consulting India Pvt Ltd, the Indian arm of France-based Capgemini, has taken up 50,000 sq ft in the DLF IT hub in New Town Rajarhat of West Bengal and will eventually consolidate its city operations from that centre.

In the first half of 2007, the Calcutta operation of Capgemini experienced a growth of 70 per cent. Capgemini also plans to raise its employee strength from the current 17,500 to 40,000 by 2010.

In its past 18 months, Calcutta has touched a headcount of 500 and is expected to soon touch a workforce of 900.

The headcount of the parent company, Capgemini, a consulting, technology and outsourcing firm, stands at 80,000, which it aims to take it to 110,000 by the end of the decade.

According to Gautam Mukherjee, director of Capgemini Consulting India, the company is looking at recruiting 30,000 employees by the end of 2008.

If the company significantly exceeds its current recruitment target, it would be second to IBM, which had around 53,000 employees in the country at the end of last year.

At the same time, the West Bengal government is trying to move up the value chain and make the state a chip fabrication hub in future. According to Debesh Das, the state IT minister, West Bengal is trying to work out ways to attract various chip designing companies to set up offices in West Bengal's 'India Design Centre', the 1.5 acre, Rs 400 crore (Rs 4 billion) project scheduled to be operational by 2008.

The West Bengal government has already invited chip giants such as Intel, Texas Instruments, Qualcomm, Cadence, Synopsis and Sequence to work at the centre.

"The Indian Design Centre would throw open employment opportunities for close to 7500 professionally qualified people," Das added. In the present scenario, there are close to 130 chip design centres in India of which 67 per cent are based in Bangalore.
http://www.rediff.com/money/2008/feb/19jobs.htm

IT sector may get some regions to bloom once software parks scheme expires: Union budget 2008-2009 may announce some incentives for IT investment regions to replace the current software technology parks of India scheme, which will expire in 2009.Some main highlights of the policy are

1. Government will set up exclusive investment regions which will be spread over at least 40 Sq km for development of IT sector.
2. Company having any type of IT operation will be eligible to set shops in the proposed regions
3. Government will be responsible for creation of ready made facility

MphasiS cuts 200 jobs in Chennai

RETRENCHMENTS are taking its toll on the Indian IT industry and the latest to join the list is MphasiS. The IT & BPO services company, which is part of the $22-billion EDS, has reportedly shed around 200 people. According to sources, MphasiS has retrenched 200 employees at its Chennai centre and all this in a span of two days last week.
MphasiS, in response to this development, said in a statement: "The query is speculatory and as per policy, MphasiS, an EDS company, does not respond to rumours and speculation." It further added, "MphasiS continues to hire people to meet business demands. The company has grown from an 11,000-employee organisation in 2006 to over 27,000-strong in 2007 and the trend will be similar in 2008."
It was not clear whether this retrenchment was restricted to the Chennai centre or covered other locations. Sources said the retrenchment was largely centered around the performance issue and it has probably affected those who were on the bench.
The recent cases of retrenchment in IT majors like TCS and IBM have centered around performance issues. However, industry observers feel it is very difficult to pinpoint whether it is performance issue or the weakness in the market which are forcing companies to take this step. At the same time, there has been a lot of flab built into a lot many companies and this could be an opportune time to cut costs as employee compensation accounts for around 40% of a typical IT services company's revenue.
According to reports, EDS' quarterly profit fell 13%, hurt by the loss of key customer Verizon Communications, which decided to handle its own technology work. Sales in the Americas declined 8%, and operating profit in the region tumbled 28%. MphasiS was one of the first Indian IT services companies to be acquired by an MNC IT company. EDS also later merged its India operations with MphasiS.

raosrinivas is very true. The dagger of uncertainity always hangs on shoulders of these IT employees.