Global recession; Wipro customers cancel contracts!

Indian IT outsourcing company Wipro is seeing a few customers cancel contracts and more delaying or downsizing deals as a result of deteriorating global economic conditions, its joint chief executive said.

Girish Paranjpe added that Wipro, India's third-biggest software services exporter, was feeling minimal impact from last week's attacks that killed almost 200 people in Mumbai, and reiterated that the company expects business to improve next year.

Referring to the Mumbai attacks, he told Reuters in an interview on Monday, "I don't see any operational impact of that ..."

When asked about cancellations by Wipro's customers -- who include Cicso, Credit Suisse and Nortel -- he said: "Some few, but much more delay, postponement, resizing -- a few cancellations."

Paranjpe said he remained hopeful that business would pick up in the company's first quarter beginning in April next year after a slowing that began about a quarter ago. Customers cannot sustain constrained spending indefinitely, he said.

"About six months you can manage with compression, three to six months you can manage with compression. Beyond that, you have to start thinking longer-term," he said.

"I'm still kind of optimistic that we would have gone past the bottom some time in the first fiscal quarter" next year, he added.

Sector leader Tata Consultancy Services and fellow large Indian outsourcer Infosys have recently expressed cautious optimism about the market, but like most peers they face at least short-term uncertainty.

Wipro makes about half its revenue in the Americas, and about a quarter globally from the financial services sector -- a fairly typical business split among Indian outsourcers, whose large English-speaking workforces gave them an early advantage.

Asked how tough price negotiations were becoming, Paranjpe said Wipro was trying to help customers cut costs in other ways than lowering prices. "There is a discussion about how we can alleviate the pain that they are going through. Our discussion has been about how we can help them with cost, rather than focused on price."

"That's what clients ultimately care about: Given the downturn, how much has my budget gone down and to what extent can you contribute to help me bridge the gap?" he said.

Paranjpe argued that big players like Wipro stood to gain market share as customers looked for reliable partners. "You want fewer people you can bet on, who are going to survive the downturn as well. So there is an almost automatic flight to size and quality," he said.

Although consolidation in the financial sector would undoubtedly make for a tougher market, Paranjpe said it would also bring opportunities in the medium term as customers would have to integrate and streamline their operations.

It would also bring chances to make acquisitions as valuations dropped -- possibly large ones, after last year's $600 million buy of Infocrossing -- and to make selective hires of personnel who might have been unaffordable in better times.

"I think we have gone past the small-budget acquisitions, which is not to say that we will never do a small one, but which is also to say that big dollar signs don't scare us," he said.

"We would like all the acquisitions to be made outside India so we can globalise our workforce."
Asked about the effect of the weakening rupee and stronger dollar on Wipro's results, Paranjpe said, "It's dizzying, actually. It's completely roller-coaster, on the currency side."

"So what we have decided is that we will simply go hedge, for a certain duration, and let our treasury worry about that, and the business will really focus on generating profits from operations," he said.

Wipro will be more cautious about spending but does not plan a hiring or travel freeze, Paranjpe said.

"Building our new facilities we're kind of watching more carefully, hiring lots more people. We're kind of being circumspect about spending on marketing ... being more cautious about travel."
"Full-page ads are out," he added. "Any business which has been in full growth mode for five years does accumulate a certain amount of excess baggage."

Source: Reuters