Financial results

When it comes to outsourcing suppliers, there are two types of company at present: offshore outsourcers, and the rest. In terms of growth, and investor expectations, the two are far apart.

In the latest quarters, the three big Indian suppliers of offshore outsourcing services – Tata Consultancy Services, Wipro and Infosys, all produced what looked, at first glance, like yet another set of spectacular results, confirming that ‘offshoring’ continues to be very economically attractive to their clients.

Tata, the largest Indian outsourcing company, for example, announced revenues up 26% to 25.8 billion rupees ($590m) and net profits of 4.7 billion rupees ($107.8m), flat on the same quarter a year ago. (These results are based on US accounting principles, and are different to the Indian accounting standard figures).

For the year, Tata became the first Indian IT company to pass the $2 billion mark in revenues, with sales up 37% from $1.6 billion. The company, which floated on the Mumbai exchange in 2004, said it signed 53 new clients in the quarter.

Tata also demonstrated that offshore does not mean Asia: it now has four centres in China, two in Brazil, three in Uruguay and one in Hungary. It now has 45,700 employees.

Those are good growth and profit margins, but still fell far short of expectations. This has triggered a debate about the long-term prospects of offshore companies. The main problem is that Tata is paying higher wages, which is eating into profits and could undermine the business model.

One of Tata’s big rivals, Infosys, announced sales up nearly 50% to 19.87 billion rupees ($455m) for its fourth quarter, with profits up 67% million to 5.67 billion rupees ($127m). But in spite of this performance, Infosys warned of a slowdown, citing tougher regulatory requirements in the US (aimed at fraud reduction and privacy, not against offshoring). These regulatory and wage pressures have always been cited as threats to the offshore business model, but analysts are not unduly concerned.

Wipro, the third big outsourcer, also reported strong fourth quarter growth, with sales of 23 billion rupees ($525m), up 30%. Net profits rose 35% to 4.5 billion rupees ($102m). Like the others, Wipro said it was pushing into higher margin areas of business, such as business process outsourcing, to counter any threat to margins.

Now to the West. The biggest global services company, by far, is IBM. Services account for just over half of IBM’s total revenues, so when this business stumbles, the whole of Wall Street gets nervous. For its first quarter, IBM reported sales up just 3%, to $22.9 billion, but without the benefit of favourable exchange rates, growth would have been just 1%. Profits were $1.4 billion, up slightly from the quarter a year ago. This figure was below IBM’s usually accurate earnings guidance and sent the whole market tumbling.

IBM blamed its problems squarely on its services business, particularly in Europe, which grew by only 6%, much slower than of late, although its mainframe business also slowed, due to product cycles. IBM is trying to move to smaller, higher margin services and to cut costs, but this is proving costly. Some Wall Street analysts think IBM’s problems signal a wider, industry malaise. “The drop off in March was breath-taking in scope and suddenness,” said one Morgan Stanley analyst.

IBM’s close rival in services, Accenture, came in with a more respectable set of figures, with sales up 15% to $4.2 billion for its second quarter. Net profits jumped from $123 million to $210 million. But there were some dark clouds: Its margins also fell, and it revealed a $24 million loss on its high-profile UK National Health Service contracts, which are running behind schedule.

CEO William Green did not seem unduly concerned: “This is a terrific assignment. We could not be more pleased to be on it. When you take on something of this magnitude, you’re going to have bumps along the way.” Accenture’s two NHS contracts are worth around $2 billion.

One other result stands out this month: In spite of growing concerns about competition and its proprietary business model, Research in Motion (RIM), the company behind the popular BlackBerry email reading device, continues to report hectic growth. In its fourth quarter to February 2005, sales grew by 92% to $210.6 million. Its small loss of $2.6 million, against a $41 million profit in same quarter a year earlier was due to a patent infringement lawsuit.

Some industry analysts have expressed concerns that major telecoms operators, such as Vodafone of the UK, are preparing competitive services that do not use RIM products or services. But RIM says demand remains strong: BlackBerry user numbers grew 470,000 in the quarter, and now stand at 2.51 million globally.

On the theme of berries, router manufacturer Juniper Networks also stands out. Sales of its high-end J-series routers and its NetScreen security products helped to drive the company’s sales up by 100% to $449 million, with profits more than doubling to $75 million. Juniper’s high stock price and mounting cashpile is enabling it to compete against Cisco for acquisitions, buying two Silicon valley start-ups, Peribit Networks Inc and Redline Networks Inc, for a total of $469 million this quarter, extending the range of products aimed at enterprise customers.


Key supplier financial results – April 2005
Company   Main activity   Period   Period end   Revenue ($m)   Rev change   Net inc ($m)   Prev net Inc ($M)  
Accenture Ltd Consultancy and IT services 2Q05 28-Feb 4216.4 15% 209.8 123.1
Advanced Micro Devices Inc Microprocessors 1Q05 27-Mar 1226.6 -1% -17.4 45.1
Aladdin Knowledge Systems Ltd Security products 1Q05 31-Mar 20.3 -88% 1.2 1.7
Altiris Inc IT management s/w 1Q05 31-Mar 46.9 25% 2.4 3.1
Ariba Inc E-procurement s/w 2Q05 31-Mar 81.3 45% -6.9 -0.8
Avaya Inc Business comms systems 2Q05 31-Mar 1222.0 21% 36.0 125.0
Borland Software Corp Application development s/w 1Q05 31-Mar 71.3 -2% 3.7 0.7
Broadvision Inc Customer targeting s/w 1Q05 31-Mar 16.4 -22% 2.9 -0.9
CACI International Inc IT services 3Q05 31-Mar 414.9 44% 21.6 15.8
Check Point Software Tech Ltd Firewall &VPN s/w 1Q05 31-Mar 137.7 19% 73.7 41.9
Citrix Systems Inc Server applns s/w 1Q05 31-Mar 201.9 25% 38.6 9.3
Dicom Group Plc* Document capture s/w 1H05 31-Dec 165.1 13% 6.5 1.6
DST Systems Inc Financial s/w &services 1Q05 31-Mar 628.3 3% 49.2 51.6
E.piphany Inc Customer interaction s/w 1Q05 31-Mar 16.2 -20% -6.4 -4.2
EMC Corp Storage systems 1Q05 31-Mar 2243.1 20% 269.8 139.8
Epicor Software Corp Accounting s/w 1Q05 31-Mar 67.3 55% 6.3 3.5
Foundry Networks Inc Networking products 1Q05 31-Mar 84.6 -19% 9.9 19.9
Hyperion Solutions Corp Business intelligence s/w 3Q05 31-Mar 177.1 7% 18.8 12.7
IBM Corp Systems, software &IT services 1Q05 31-Mar 22908.0 3% 1402.0 1363.0
ILOG SA S/w components 3Q05 31-Mar 31.4 11% 1.1 1.1
Informatica Corp Data integration s/w 1Q05 31-Mar 58.4 8% 4.3 1.9
Infosys Technologies Ltd Offshore IT services 4Q05 31-Mar 455.0 50% 127.0 77.0
Intel Corp Microprocessors 1Q05 2-Apr 9434.0 17% 2154.0 1730.0
Interwoven Inc Content mgmt s/w 1Q05 31-Mar 42.5 14% -0.2 -7.0
Iona Technologies Plc Integration s/w 1Q05 31-Mar 16.3 -3% 0.1 0.2
JDA Software Group Inc Retail management s/w 1Q05 31-Mar 50.3 -9% 0.7 -0.4
Juniper Networks Inc Networking systems 1Q05 31-Mar 449.1 100% 75.4 33.5
Lucent Technologies Inc Networking equipment 2Q05 31-Mar 2335.0 6% 282.0 68.0
Manugistics Group Inc Supply chain mgmt s/w 4Q05 28-Feb 45.2 -22% -17.2 -57.5
Mercury Interactive Corp Appln perf mgmt s/w 1Q05 31-Mar 198.8 27% 31.4 18.9
Motive Inc Systems &network mgmt s/w 1Q05 31-Mar 24.6 8% 0.6 -1.6
MRO Software Inc Asset mgmt s/w 2Q05 31-Mar 43.2 -3% 0.6 1.4
NetManage Inc Host access s/w 1Q05 31-Mar 12.1 2% 0.8 -0.4
Network Equipment Tech Inc Networking systems 4Q05 25-Mar 23.8 -12% -4.1 -3.5
Polycom Inc Voice &video conferencing s/w 1Q05 31-Mar 137.5 15% 16.4 3.3
Research in Motion Ltd Mobile email products 4Q05 26-Feb 404.8 92% -2.6 41.5
RightNow Technologies Inc CRM software 1Q05 31-Mar 18.3 43% 0.8 0.1
SAP AG* Business applns s/w 1Q05 31-Mar 2247.7 11% 330.2 297.7
Secure Computing Corp Security software 1Q05 31-Mar 25.6 21% 4.1 2.2
SeeBeyond Technology Corp Appln/process integration s/w 1Q05 31-Mar 37.3 8% -2.6 -5.8
Silicon Graphics Inc Workstations and servers 3Q05 25-Mar 159.2 -25% -44.5 -4.1
Storage Technology Corp Storage systems 1Q05 1-Apr 499.3 -3% 23.4 23.3
Sun Microsystems Inc Workstations, servers, web s/w 3Q05 27-Mar 2625.0 -1% -9.0 -760.0
SunGard Data Systems Inc Financial sector IT services 1Q05 31-Mar 946.5 13% 89.6 85.6
Sybase Inc Database &appln dev s/w 1Q05 31-Mar 191.9 5% 13.3 13.2
Tata Consultancy Services Ltd* Offshore IT services 4Q05 31-Mar 590.0 26% 108.0 108.8
Unisys Corp Systems &IT services 1Q05 31-Mar 1366.6 -7% -45.5 28.9
VeriSign Inc Internet security s/w 1Q05 31-Mar 401.0 75% 49.2 9.1
WebEx Communications Inc Web conferencing svcs 1Q05 31-Mar 70.9 26% 12.9 10.0
Wipro Ltd* Offshore IT services 4Q05 31-Mar 525.7 30% 102.4 74.5
*figures converted to $US at exchange rates averaged over the period.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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