As Nokia hugs Microsoft, Sasken may feel the ache

When Nokia, likened to a ‘burning oil platform’ by its CEO Stephen Elop, entered into a strategic tie up with Microsoft last Friday, it was time to sweat at Sasken Communication Technologies Ltd.

The Mumbai-based outsourced research & development (R&D) services provider counts the Finnish phone maker among its largest clients, and worked on projects related to the integration of Symbian, the mobile phone operating system that Nokia has been using since years, with handsets.

But on Friday, Nokia announced a clean break from Symbian by adopting Microsoft’s Windows Mobile platform in a bid to halt nosediving smartphone sales — even as Apple’s iPhone and phones running Google’s Android operating system fly off the shelves.

That would mean Sasken will have to adapt to R&D for Windows Mobile to keep the revenue flows going, or look for business elsewhere.

Outside of India, Sasken has the most number of offices in Finland and Europe contributes nearly 40% of its
revenues.

At the end of December, Sasken’s top five clients together contributed about 59% of the firm’s revenues, down from 64% a year ago. It had one client contributing more than $20 million and another client contributing between $10-20 million.

Besides Sasken, other outsourcing vendors such as HCL Technologies and Satyam Computer Services also do work for Nokia from India.

HCL had signed a five-year remote infrastructure management contract with the Finnish firm in 2009.

The fate of Nokia’s own R&D centre in India is also not known at this point. Company has about 1200 staff in India spread across three centres in Mumbai and Bangalore.

Nokia’s chief executive Elop, addressing analysts in London on Friday, said his intention was to “significantly reduce” R&D spend.

Elop also made specific reference about cutting down expensive outsourced work done by consultants. Nokia is known for its large R&D spends. In 2010, for instance, the company spent $3.9 billion on R&D.

Friday, following Nokia’s global announcements, Sasken was cautious in its response.

“The impact of announcements made by Nokia will take time to play out,” an emailed statement from Sasken, attributed to its management team, said.

“Some uncertainty is likely in the near term due to the change in our customer’s organisation and strategies.”

Earlier, while announcing its financial results for the quarter ended December 31, Sasken management had said that it would be “impossible” for the company to meet its current fiscal guidance of 5-6% revenue growth as some of its large clients are restructuring their R&D operations.

“We had plan(ned) for certain growth in Finland also and we had kept certain cost bench over there which has not materialized, which has impacted our Ebidta adversely,” Sasken’s chairman and chief executive Rajiv Modi said during the call on January 21.

In the first nine months current fiscal, Sasken’s revenues touched Rs417.9crore, down from Rs420.4crore during the same period a year ago.

Nokia’s India leadership too remained in the dark about how the India implementation of the global strategic announcements will play out.

“The deal (with Microsoft) is still being finalised and we will share more specifics when we can,” a Nokia spokesperson said. “We do not have any details to share with you at this point in time.”

Analysts say Nokia’s consumer services platform Ovi Store will probably be moved to India as a franchisee model.

“Maintaining the legacy platform till the transition completes can be a good opportunity for some of the Indian vendors,” said Chandramouli of a director at Zinnov Management Consultancy, a Bangalore-based firm that tracks R&D outsourcing to India.

For now, Nokia will continue to sell some more phones based on Symbian, presumably till the company runs out of its current inventory and makes the transition to Microsoft’s Windows Mobile platform.

That’s what outsourcers such as Sasken are pinning their hopes on.