Wipro, Infosys see cautious IT spending

TIANJIN, CHINA: Two leading Indian IT outsourcing companies said customers were still spending on technology but the mood remained cautious and short-term as firms wait to see how the global recovery plays out.

"Demand continues to be okay," Kris Gopalakrishnan, chief executive of Infosys Technologies, India's No 2 IT outsourcing firm, told Reuters on Monday in an interview on the sidelines of the World Economic Forum in China.

"What is challenging is that companies are willing to commit for the short term but not the long term or the medium term. Because of that it becomes challenging to do medium- to long-term planning."

Martha Bejar, president of global sales and operations at Wipro Ltd, India's No 3 IT outsourcing firm, said IT budgets were flat to slightly higher as customers focus on projects to bring long-term changes to their operations.

"Folks are cautious in the way that they're spending," she told Reuters in a separate interview. "Customers are spending a lot more time making decisions ... but we're not seeing cancellations or delays." The current environment represents an improvement from the depths of the global downturn, analysts said.

"The earlier scenario was that everyone was expecting huge cuts in IT spending, that is behind us now," said K.K. Mital, head of portfolio management services at Globe Capital in New Delhi. "Though spending is cautious, it is happening."

Strong demand for outsourcing helped Wipro, which develops software applications, integrates IT systems and manages call centres, to post a strong June quarter despite a softening in Europe's revenue contribution, which dropped to 25.4 percent from 26.3 percent in the previous quarter.

At Infosys, European customers' share of overall revenue has dipped to 20 percent from 28 percent two years ago.

Over the medium term, Infosys would like to bring the United States and European markets into balance, with each contributing about 40 percent of total revenue, Gopalakrishnan said. "We hope to bring (the European contribution) up, but it will take time because Europe is recovering slower," he said. "It will probably take a couple of years to get it back."

Slow boat in China

China has proven a surprisingly tough nut to crack for the likes of Infosys, Wipro and other IT outsourcing firms, which once had big hopes for the fast-growing market.

Analysts blamed the failure of those aspirations to materialise on slower-than-expected development of the domestic market and the reluctance of customers to buy outsourced software systems made in China, notorious for its intellectual property theft.

Infosys and Wipro each now operate out of two locations in China, the former with about 2,600 workers while the latter has a more modest 600 people.

"We're trying to work with local Chinese companies, but it's taking longer than we'd envisioned," Gopalakrishnan said. "As soon as we started, we also found it was challenging to find global clients who wanted to go to China," he added.

"It didn't really take off as we expected. It took time to convince clients and now it's ramping up." Wipro has had a similar experience, said Bejar.

"Our experience has been very positive with local talent," she said. "Local business has been a little tougher. It's something now that's beginning to pick up ... (but) that has taken a lot longer than probably we had initially anticipated."