The Hindu Business Line : IT majors up guidance

Robust earnings performance and upward revision in financial guidance by software majors were the highlights of the first-quarter earnings season for 2006-07.

Bolstered by the strong momentum for offshoring, Infosys announced substantial revision in revenue guidance to 40.5 per cent from 29 per cent at the beginning of the year and in earnings to 39 per cent from 27 per cent.

Satyam Computers followed suit, but its revision in revenue and earnings guidance were relatively lower.

Cognizant also pegged up its already robust revenue guidance of 48 per cent to 55 per cent.

The offshoring momentum appears to have been strengthened by the larger number of new project starts and higher discretionary spend on software development projects in the latest quarter.

This is evident from the rise in onsite revenues recorded by the software majors. Typically, new projects start onsite and then move offshore in a phased manner.

Earnings trend

All the frontline companies, with the exception of Wipro, clocked strong double-digit sequential (quarter-on-quarter) growth in revenues. And the top, top five and top 10 clients have powered this double-digit growth in most cases.

For instance, the top client of Infosys clocked 41 per cent growth, while the top five clients grew by 20.5 per cent.

For Satyam, however, the contribution from the top five was sluggish and clients outside the top 10 were the key driver of revenues in the latest quarter.The number of clients in the $10-million and $50-million brackets also increased sharply for most players.

The frontline software companies also registered a smart rise in revenue contribution from Europe. This trend is likely to steadily reduce the dependence on the US markets.

For TCS, the contribution from Europe increased to 27.7 per cent from 24.3 per cent on a sequential basis. For Infosys and Satyam too, this contribution has started moving up.

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