One stop Shop or Pure Play?

Today top tier IT companies do almost $750M of IMS run-rate business of course it includes lot of Hosting, Apps Support and Helpdesk components and/or Products support business within IMS but pure play IMS companies (Size is still around $75M) are also making their mark. I have compiled data on both spectrum..

Data below shows quarterly revenue for Top tier companies:

	Revenues (US $ million)
Quarter ended	Sep-08	Dec-08	Mar-09	Jun-09	Sep-09	Dec-09	Mar-10	Jun-10	Sep-10
Infrastructure Mgmt Services
Tata Consulting Services	118.1	123.1	118.9	137.7	123.0	129.2	139.9	156.1	188.4
Wipro Technologies	216.4	213.4	218.6	215.8	219.4	240.0	251.8	254.0	269.8
HCL Tech	79.2	84.7	85.2	106.9	122.2	132.3	152.1	165.2	179.2

Pure Play Infrastructure Management Services (IMS, RIMO) companies in India are giving them run for their money to top tier companies–

Year (US$MM)	2009	2008	2007
Allied Digital
Revenue	$87.5	$66.9	$34.7
PAT	$17.7	$9.7	$5.1
Net Margin %	20.2%	14.5%	14.7%
Glodyne
Revenue	$111.3	$68.4	$37.3
PAT	$17.3	$9.0	$4.5
Net Margin %	15.5%	13.2%	12.0%
Omnitech
Revenue	$48.1	$38.1	$29.2
PAT	$8.8	$7.4	$5.7
Net Margin %	18.2%	19.3%	19.4%

Microland – do you have any data for last three years?

http://www.glodynetechnoserve.in/

http://www.omnitechindia.com/html/index.asp

http://www.allieddigital.in/

http://www.microland.com/

Any Comments or data welcome.

Cheers.

Staying Power

Very good and worth reading book by Dr. Michael A. Cusumano.

Really very relevant for IT services firm – Also new SaaS and Cloud technologies paradigm will ensure that we move towards the path which Dr. Cusumano has charted.

Six enduring principles for managing Strategy & innovations in an uncertain world.

He suggest building following

Broader way to think about Strategy & Business models:

1.       Platforms – Not just Products

2.       Services – Not just Products (or Platforms)

Agility factors (Flexibility + Speed)

3.       Capabilities – Not just Strategy

4.       Pull – don’t just Push

5.       Economies of Scope – Not just economies of Scale

6.       Flexibility  - Not just efficiency

Agility brings staying power.

All IT startups must think above and weave into core strategy.

Will all IT services companies perish as few of them becomes mammoth or they will have staying power by becoming niche and agile?

Comments?

Attrition eroding Margins for IT companies?

With technology firms in the country seeing a surge in contracts, employee attrition could be a big challenge for top IT companies and may impact their margins. Less diversified mid-sized IT firms, with a smaller bench strength, may even lose out on contracts.

During the downturn, most technology firms had cut down on hiring but with the demand picking up, top firms including Tata Consultancy Services, Infosys Technologies and Wipro Technologies implemented wage hikes to check attrition. Despite this, attrition rates remained high for TCS (13%), Infosys (17.1%) and Wipro (19.4%). Higher attrition rates are expected to remain a concern for the industry since replacing people, with fresh graduates would cost 8-10% more.

Analysts point out that every 5 % points of attrition potentially knock off 150 bps from gross margins. Another way to describe this would be, every 5% raise in attrition can neutralize 3-4% in currency depreciation, or 2% average pricing hikes.

While the impact of attrition on a company’s gross margin is well known, its other (side)effects include  -

·         Higher recruitment and training costs,

·         Loss of business momentum via delays in staffing,

·         Potentially poor delivery against peers in multi-vendor contracts,

·         Larger cuts to margins in fixed-price engagements.

Even though tech firms including TCS, Infosys, Tech Mahindra and others have indicated that they are not looking at another round of increments, to retain existing employees, Top IT firms could look at 8-10% hike for fresher(s). The increased entry level hires coupled with greater competition from MNC vendors will likely result in a jump in fresher salaries. This will further put pressure on margins, especially at Tier-II vendors.

However, Infosys said they  weren’t concerned about attrition as it is a part of the model and companies have survived it in the past. We are not looking at hiring fresher(s) at increased costs. Salaries would be at the same levels as they were last year. TCS said that the company would take steps in line with industry trends. We are looking at hiring more laterals in the coming quarters and wage hikes for them too would be driven by demand.

- Cheers