The Hindu Business Line : US cos’ move may impact Indian firms

Bangalore/Mumbai, Sept. 18 The recent spend cuts and profit warning by some top tier telecom companies in the US are likely to have a mixed impact on the Indian IT services firms.

While companies like Subex Azure Ltd acknowledged the impact and reduced its revenue forecast, other vendors such as Wipro Technologies, Tech Mahindra and Sasken do not see any impact. But industry analysts feel it is too early to judge the possible impact on the Indian firms.

According to telecom research firm Ovum, the North American wireline capital spending in the first half of 2007 was down 7 per cent compared to last year, largely due to AT&T spending cuts resulting from its merger with Bell South.

Ovum expects capital spending growth to remain stalled through the rest of 2007 and into 2008.

Alcatel warning

Following a change in capital spending among its N.American wireless clients, telecom equipment maker Alcatel-Lucent issued a profit warning by cutting its full revenue forecast for the year.

Wipro Technologies works with both AT&T and Alcatel-Lucent. Post Q1 results in July, Wipro said it had begun to see positive growth from the telecom OEMs after facing negative growth for almost three quarters due to the consolidation.

“As a result of consolidation, more and more Tier-1 companies are cautious and are looking for sourcing complete integrated solutions from companies like Wipro as well as partner to enter new markets,” said Mr P. Subramaniam, Senior Vice-President, Telecom Engineering Solution, in a statement to Business Line.

Tech innovation

Mr Kamlesh Bhatia, Principal Research Analyst at Gartner, said most US telecom firms are in the middle of a technological innovation process, due to which they are holding back on their investments on the IT side.

“When telecom firms are in the process of evolving, investments are made on the network side first. It is then supported by investments on the IT side. Most US companies are in the first phase due to which we are witnessing what can be said to be a temporary slowdown in IT spending. However, developing economies in APAC have increased their capex spend, which is good news for Indian IT firms,” Mr Bhatia added.

Sasken, which develops embedded software for Alcatel’s network equipment, said it won’t be impacted by the recent developments. “As we focus on GSM and wireless space, the developments in the US don’t impact us as much as others,” said Dr G. Venkatesh, chief strategy officer, Sasken.

Mr Vineet Nayyar, Managing Director and CEO of Tech Mahindra, said the company was not impacted by the reduced capex spend by the US firms.

While recent developments in the US telecom sector show that one or two companies have slowed down their IT spend, one cannot generalise it for other US firms, said Mr Gaurav Dua, IT analyst, Sharekhan Securities.

“Wireline spending is generally on the telecom infrastructure side, i.e., (investment on telephone lines). This cannot be linked to the software side of the business. Telecom firms in the US continue to make significant spends on the IT side of the business, such as building systems, doing migration projects, integration projects etc.”

Telecom firms continuously require the IT strength to develop and implement newer services. “Indian IT firms, who can assist in development and support of new technologies should not be worried, as this is a tremendous business opportunity for them,” said Mr Tanmay Divatia, Vice-President, Patni.