The Hindu Business Line : ‘Clients in wait & watch mode’

Bangalore, Jan. 21 Wipro forecast a muted growth for its IT services business in the March quarter considering weak client spending in 2009 due to prevailing economic downturn. Business Line caught up with Girish Paranjpe, co-CEO of IT services business at Wipro, to get his perspectives. Excerpts.

Considering that March quarter is the strongest seasonally for IT purchases in India and with Citi revenues expected to flow in during the quarter, how do you explain the drop in guidance?

March quarter is the strongest for products in domestic business. The guidance does not include product revenues. Citi will kick in. We will count the revenue this quarter and that is a pretty predictable revenue stream. Most of our clients have a January 1 new fiscal start. They have deliberately ended many of the projects on December 31. And to restart the project, they will have to assess the situation next year. So there is an uncertainty about when the projects will start because budgets have been pared, and clients do not want to make a fresh start.

Any feelers on project starts?

Just two weeks into the year, there is no big rush from their side. They will at least wait for one or more quarters before they can get serious about spending. Their intention in some sectors is to wait and watch, to conserve cash, not to make big bets into big programs. Unless they know where their annual revenue is, they will not be incurring costs. The budgets are finalised. But after budgets are finalised, they have been told not to spend. There has been a little bit of decline in budgets, but that doesn’t normally affect us. Last three years they have been adding 10 per cent increase in budgets. So if you take out 10 per cent or even 15 per cent, it is not a big deal.

Does the BFSI sector have more clarity on spends?

They are more sure of survival than before. Whatever happened has happened. I don’t think any more changes are likely to happen. And nobody is going to fail. Everybody has figured out that they are part of the bloodstream and nobody wants to stop the bloodstream. There will be some bail-outs, but nobody is going to fail. The question is when do they start to consolidate operations. Typically when they do consolidation, there is lot of business process and consulting work. And there is lot of IT work. That is what consolidation is all about.

Do you expect troubles to continue on the telecom sector?

The service provider side has been robust because of growth of the wireless. There’s some consolidation happening there. On the equipment side, it will take a while to steady itself. There will be some consolidation, and one or two vendors will survive.

Considering the continuing disturbance in the telecom equipment sector, would you rethink on your exposure?

It is a tough question. In some ways we are the dominant player there. Nobody can touch us while doing work there. The industry itself is in turmoil. If you walk away, there is nobody left to serve the market. And that skill and capability you cannot deploy anywhere else. At the same time, the sector is in the consolidation mode. Sooner or later, there will be two or three players who will be strong. Then it will be like Intel and Microsoft who will have a stronghold.

Do you intend to continue working with Nortel?

We have been having a dialogue with them since the time they announced. So they think this is more for the financial restructuring. Inherently, they are quite okay. They think the business is still quite okay. We expect to do business with them going forward.

Are you looking to diversify your product engineering services practice?

We are looking at product engineering in healthcare, manufacturing, as well as aerospace, and hopefully this year we will look at energy and utilities. The goal is to de-risk ourselves from the high tech and telecom, which account for almost 80 per cent of the product engineering revenues.

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