A recent Morningstar report on the IT services and consulting industry projects client demand to rise. Morningstar notes that the U.S. Tech Pulse Index has been rising since May of last year and registered 14.2% annualized growth in December 2009. No wonder ITO and BPO players in India are hiring and expanding their delivery capabilities to cater to the growing demand.
Cognizant Technology Solutions (CTSH) reported revenues of $902.7 million, registering annual growth of 20% and sequential 6% growth. The market was looking for revenues of $888.4 million. EPS of $0.50 also grew significantly over the previous year’s $0.41 and exceeded the market’s expected $0.46.
During the quarter, the company added over 10,300 employees, and despite the previous year’s depressed conditions it added more than 16,700 people during the year.
For the year, Cognizant reported revenue growth of 16% to $3.28 billion with EPS rising from previous year’s $1.59 to $1.90.
Cognizant is addressing the twin factors of cyclical and secular influences that are driving the market. While cyclical factors are creating revenue opportunities such as those offered by M&A integration, the secular trends are the “megatrends of digitization and disintermediation, government-mandated change and new disruptive technologies such as cloud social computing and virtualization coupled with accelerated competition from around the globe.” To address these factors, Cognizant is trying to create more efficient, effective, and innovative solutions which, the company says, offer “transformation and virtualization all in one single platform.” The company is creating product type solutions such as security services in banking or pharmaco-vigilance in life sciences in a move out of pure labor arbitrage.
Additionally, Cognizant is building strategic relationships and has recently tied up with Temenos, a market leader in core banking systems, to strengthen its presence within the financial services sector. Cognizant is also leveraging its tie-up with Invensys and recently launched an engineering and manufacturing solutions or EMS service offering. Within the retail space, the company acquired Active Intelligence, a systems integration company specializing in the Oracle retail solutions portfolio.
Cognizant has also managed to expand its reach globally through their Cognizant 2.0 web platform. The company is able to leverage its skills and knowledge database on any project across the enterprise. Given that it has 50 development centers operating out of eight countries, Cognizant’s platform has helped it to deliver a cost-effective model to clients.
For the current year, the company is targeting revenues of $3.94 billion with an EPS of $2.19. Q1 revenues are expected to come in at $935 million with an EPS of $0.52.
Their stock is trading at $47.03, taking its market capitalization to $13.9 billion. Earlier last month, the stock touched a new 52-week high of $48.95.
Wipro (WIPRO.BO), the third largest Indian player, recorded IT Services revenues of $1.113 billion for the quarter ended December 31, 2009. Revenues grow 2% over the year. IT Products business which deals with personal computing, enterprise and software products ranging from desktops to enterprise and networking platforms and solutions saw revenues grew 22% over the year to $218 million in the period. EPS rose to Rs 8.19 ($0.18) from Rs 6.91 ($0.15) a year ago. For the quarter, earnings from the services segment grew 17% over the year to $263 million.
In view of the growing demand, the company is expanding its global footprint and recently inaugurated an IT & BPO delivery center in Chengdu, China. There is already a center in Shanghai, and the Chengdu center is expected to cater to additional requirement in the region. Worldwide, Wipro added 4,855 people during the quarter to cater to the growing business.
To address the trends of virtualization, Wipro recently entered into a strategic agreement with Trend Micro. The two will jointly provide virtualized data center security, and data center consolidation solutions. Wipro is also addressing the cloud computing space. Forrester has identified Wipro as a key Indian player offering digital asset management and ADM services on Microsoft Azure.
Earlier this year, Wipro launched two new solutions, a digital customer experience platform and a loss prevention platform, to address the cloud specifically for the retail sector. The digital customer experience platform (DCxP) integrates social media, community and customization features to simplify retailers’ ability to manage their online business. By offering this as a pay-as-you-use service, Wipro has also ensured that the retailers don’t shell out a huge upfront payment. The other application, the loss prevention platform, includes an analytics suite that leverages predictive modeling to prevent fraud and internal and external theft.
Wipro expects revenues of $1.161 billion to $1.183 billion, up from $1.127 billion earned a year ago.
The stock is trading at $20.80, taking its market capitalization to $30.3 billion. The stock had earlier reached a 52-week high of $23.99.
Genpact (NASDAQ:G), an all-out BPO player, has been seeing good business as well. Up until five years ago, Genpact was a captive BPO unit for GE alone. However, over the past few years, it has started catering to third-party BPO requirements. Owing to its emphasis on Six Sigma delivery levels, the company has managed to secure big wins such as Walgreens, AstraZeneca and Max New York Life. Genpact too has a wide global footprint with delivery centers in 13 countries supporting over 25 languages.
The company recently announced Q4 results and saw revenues grow 5.4% over the year to $296.9 million. EPS of $0.19, however, slipped from the $0.23 earned a year ago. The market was looking for revenues of $295.7 million with EPS of $0.16. Genpact closed the year with revenues of $1.12 billion, recording 7% growth over the year. EPS for the year of $0.73 was marginally lower than previous year’s $0.76.
Genpact recently launched Smart Enterprise Processes (SEP), a scientific methodology that optimizes process effectiveness and efficiency while aiming to deliver superior business outcomes. Through the SEP, Genpact manages end-to-end process effectiveness, thus delivering up to “two to five times” the impact on clients’ financial and operational metrics.
To expand in the retail, consumer packaged goods, and pharmaceutical verticals, Genpact recently acquired Symphony Marketing Solutions, a leading provider of analytic and data management services with expertise in these verticals, for $34 million.
The company expects revenues of $1.28 billion to $1.31 billion compared with the Street’s expected $1.27 billion.
The stock is trading at $15.15 after having reached a 52-week high this week of $15.65. Its current market capitalization is $3.3 billion.
The ITO and BPO space is set to grow in the coming years. According to the National Association of Software and Service Companies’ (NASSCOM) report, India’s export revenue from these services is projected to grow 5.5% to $49.7 billion for the year ended March 31, 2010. The growth trend is expected to double to 10%-11% by the next year. But notice, the players are becoming much more global, and their revenue structures are changing away from pure labor arbitrage models. More on this coming soon.