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"There's a drift towards application management services from application development. New clients are less relationship-driven and more mercenary", Mr Vivek Paul, Vice-Chairman told analysts.

BANGALORE, April 17

SOFTWARE-TO-SOAP maker Wipro Ltd expects its operating margins to dip further in sequential quarters going forward as existing software clients are asking the company to lower prices on promises of more work.

"We see a short-term softness", Corporate Executive Vice President-Finance, Mr Suresh Senapaty said. The operating margins of Wipro have shrunk to 28 per cent from 33 per cent over financial year 2002-03.

Wipro, which derives 92 per cent of software revenue from its existing clients, is currently facing severe pressure, with clients seeking to cut costs by offering lower rates to its outsourcing vendors.

"Our new wins have come at the existing price level", Vice-Chairman, Mr Vivek Paul said, adding that the current price-cuts were "entirely client-driven". The current business mix could further underline the intense pricing pressure, Mr Paul said.

"There's a drift towards application management services from application development", he added. "Application management services (AMS) are pure cost-play and new clients are less relationship-driven and more mercenary", Mr Paul told analysts over an earnings call.

Moreover, rupee appreciation against dollar has also shaved off part of net margins for the company. The rupee has hardened nearly three per cent against the dollar, the first appreciation in more than a decade.

Acquisition cost of AMS coupled with hike in selling and general expenses squeezed the margins in the fourth quarter.

However, the company would continue to invest heavily in its marketing efforts as it competes with global biggies to grab large outsourcing deals.

"We are in an investment mode and fundamentally the future is very strong", Chairman Mr Azim Premji said.

"There is further scope for slippage", an analyst with a foreign brokerage said.

The Wipro stock, which sank 8.25 per cent today tracking its dismal earnings announcement, could see some stability at Rs 800 level, he added.

As prices continue to slide, future growth would be driven solely by volumes, he said.

Wipro Technologies, the global IT outsourcing arm of Wipro, said its six per cent increase in manpower utilisation was offset by decrease in price realisation of 6.7 per cent for offshore projects and 5.7 per cent for onsite projects.

Volume increased by 5.6 per cent for the fourth quarter sequentially, but offshore prices dropped by 2.3 per cent even as onsite rates marginally rose by 0.8 per cent.

The company charged $3,954 per person per month for its offshore engagements and $10,229 per person per month for onsite efforts in the fourth quarter of 2002-03.

Onsite contributed 53 per cent to Wipro Technologies' revenue, while the remaining 43 per cent came from offshore efforts.

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