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Software majors take a hit in telecom vertical

Over the last four quarters, technology companies had been bracing themselves to take a massive hit in the BFSI vertical owing to the subprime crisis in the western economies.

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Sector’s growth rate over the last four quarters has been subdued for most firms

BANGALORE: Over the last four quarters, technology companies had been bracing themselves to take a massive hit in the BFSI (banking and financial services industries) vertical owing to the subprime crisis in the western economies. However, it has been the telecom vertical that has performed below expectations during this period.

Telecom featured on the list of worst-performing verticals of four of the top five domestic software exporters. BFSI was there on the list of only two of them.

All the IT majors (except Satyam) have seen subdued growth in the telecom vertical in the last four quarters. Infosys and TCS’ business in the telecom sector grew at a compounded quarterly growth rate (CQGR) of 2.7% and 2.5%, respectively, while Wipro and HCL grew at a slightly higher CQGR of 5.7% and 5%, respectively.

BFSI was a low performer for only Infosys (4.3%) and HCL Technologies (5.6%).
In contrast, the top performing verticals of these companies have grown between 11% and 20%.

Swaminathan Krishnan, chief marketing officer of Sasken Communication Technologies, says Indian software vendors logged lower growth in the telecom vertical because they were chasing opportunities in the mature western markets.

“On the services side, the telecom market is saturated in the US and Europe. That is why there is virtually no volume growth. There are opportunities, however, on the R&D outsourcing side from network equipment manufacturers, handset producers and semiconductor firms in this vertical,” he adds.

Krishnan says most telecom operators in the western markets have reached a subscriber base of over 100 million through multi-geography network. That has limited further growth for IT service providers. “Most of them (telecom operators) are defending their current market share,” he says.

But India and other emerging markets were offering huge opportunity. That is why multinationals like IBM and others were focusing on these markets in the telecom space.
“Indian operators are also trying to reach that kind of scale but they have not been able to enter other geographies. Some of them have expanded their operations to Nepal, Sri Lanka, Mauritius and other nearby countries but there is still scope for more growth here,” says Krishnan.

Sudip Nandy, president technology media telecom, Wipro Technologies, says his company was able to save itself from a bigger hit in the telecom space because it has evenly spread its service offering across various verticals.

“The verticals (technology, media and telecom) that I am looking at contribute 33% to the company’s total revenue. That means each has a share of 11%. Likewise most of our verticals have similar share,” says Nandy.

A report brought out by analysts Viju George, Kunal Sangoi and Nikhil Chakrapani of broking house Edelweiss says: “Telecom has been identified as a vertical of strength by HCL and is believed to be a key growth driver in FY09, as also (for) Wipro.”

Nandy, however, asserts that Wipro was equally focused every vertical. “It is wiser to do so (have balanced exposure to all verticals), because that way you don’t get severely hit if one industry is experiencing a downturn.”

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