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Cloud Services Eat Up Indian IT Outsourcing Earnings


I’ve been bearish on IT in the longer term, and in a long post I explain why I think we are at an inflexion point for Indian IT. Over the last quarter, results have been pathetic: HCLTech, Wipro and Infy showed less than 5% earnings growth YoY, and TCS and Tech Mahindra actually showed -30% or lower earnings growth for the March quarter. While TCS had a one time component (bonus) we saw their recent results for the June quarter showing less than 5% earnings growth YoY.

And Wall Street Journal has a story on how cloud services are eating up IT sector earnings:

The value of outsourcing deals signed in 2014 shrank 17% to $120.4 billion from $145.5 billion a year earlier, according to consulting company KPMG LLC.

Indian companies are losing business to firms that have led the way into the cloud, such as International Business Machines Corp., Inc. and Accenture PLC.

T.K. Kurien, CEO of outsourcing pioneer Wipro, said in the past his company would typically send a team of 100 employees to write, install and provide support for clients’ accounting software. Wipro now does such projects with eight people, he said.

Wipro is planning to slim down its 158,000 workforce and is scrambling to retrain its software engineers so they can do more sophisticated cloud-related coding. Mr. Kurien estimates that around 40% of his employees don’t have the skills they need for cloud computing.

They also have statistics on 7 areas where we are seeing dramatically lower volumes or contract sizes in outsourcing deals, compared to 2010.

SAP, the worldwide ERP Software Giant, sees cloud revenues surpassing on-premise revenues by 2018. Oracle, another software giant, saw cloud sales up 32%, while total revenues were up 1%, showing you regular software sales lagged. Indian IT companies have a fairly large practice based on SAP/Oracle installations, configuration, consulting and support. The cloud reduces the human effort to do the real work (much of it is already available in the cloud) which means less business for the Indian outsourcing companies.

The traditional response is to say “We also do cloud services”. But as we are finding out, services like upwork are even offering cloud services…on the cloud.


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