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BL Research Bureau

Amidst heightening concern about how IT spends may pan out for its banking and financial services clientele, Tata Consultancy Services has got a boost for its telecom vertical through a five-year deal from Ericsson. The deal involves delivering the low-margin application development and maintenance services, spread over five years.

TCS will have to share the pie with another IT services player, who is yet to be named.

This deal along with the recent win with Scottish Water, which runs over eight years and is worth £60 million , indicates that the deal pipeline is increasingly tending towards application services contracts spread over several years. This means that lower-margin services are ruling the roost, even as discretionary spending in higher margin services such as package implementation and consulting remains tight.

Even this deal is for Ericsson’s internal IT operations.

But for TCS, such deal wins do improve footprint in Europe.

With large investment banks going bust or being bought over, the future in the BFSI segment looks fraught with uncertainty. Europe may also not be immune from the crisis for long. Telecom and manufacturing may be focus verticals for IT services players going forward, but if these verticals also face strain, deal wins may largely be in the realm of application development and maintenance services. This may constrain the scope for margin expansion for IT majors.

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