Services
Indian IT Outsourcing Woes Continue (WIT, INFY, CTSH, IBM)
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Wipro Ltd. (NYSE: WIT) is following the same lead as was recently set by Infosys Ltd. (NASDAQ: INFY). The Indian information technology outsourcing firm turned in profit growth of almost 8% that was actually a hair above estimates in local terms in India. Sales grew by 19% but came in about 3% shy of local revenue estimates. The company also noted that IT services revenue was up only about 2% sequentially in the January to March period.
Where the story gets cautious is in the April to June forecast, where Wipro now expects a 1% revenue decline, which was given a caveat that revenues might grow by 1% or so on an “at-best” guess. The company is reiterating what Infosys said in that its clients are cautious in a volatile environment. There is also the aspect that outsourcing of jobs is now less popular than it was as this is an election year in the United States. The woes in Europe are also a key issue. Today’s news is likely to be a blow to the turnaround efforts made by the company after restructuring its software outsourcing efforts over the past year.
Tata Consultancy Services Ltd. gave a stronger forecast earlier this week, but the love is not being shared. Infosys Ltd. (NASDAQ: INFY) already set the tone and Wipro is following Infosys rather than Tata.
The Bombay Stock Exchange’s IT Index fell over 8% after the Infosys report and gained almost 5% after the Tata report, but today’s news from Wipro took out another 2% on the index as IT shares fell in India. Wipro shares were down almost 8% in local trading on the Bombay Stock Exchange.
We have yet to see local trading in New York for Wipro’s ADRs but these closed at $10.33 on Tuesday and the 52-week trading range is $8.63 to $14.65.
Another name to watch in this sector is Cognizant Technology Solutions Corporation (NASDAQ: CTSH) with a $22 billion or so market cap. It offers IT consulting and outsourcing and is based in Teaneck, N.J., but it could be considered as the “American-Indian Indian outsourcing outfit.” Cognizant is set to report earnings on May 7, 2012, and at $72.39 as of Tuesday’s close it has traded in a range of $53.54 to $83.48 over the past 52-week period.
Maybe the woes in India are actually working in favor of International Business Machines Corporation (NYSE: IBM), although its services backlog was down slightly to $139 billion at the end of the first quarter.
JON C. OGG
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