IT revenues: Top Four see US pie shrink in Dec quarter, even as Europe’s share goes up

TE Raja Simhan Chennai | Updated on February 23, 2018 Published on February 22, 2018

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The top four IT companies — Tata Consultancy Services, Cognizant, Infosys and Wipro — saw a decline in revenue (in percentage terms) from the US but an increase in revenue from Europe during the December 2017 quarter, when compared with the corresponding period in the previous fiscal.

This is one of the few instances when all the four witnessed such a pattern in earnings during a quarter, said sources. The US is the biggest market for them, followed by Europe.

The decline in revenue from the US happened due to cyclical factors, said Jimit Arora, Partner at research firm Everest Group. Regulatory uncertainties in the US impacted banking and financial services and healthcare (major revenue contributing sectors), while the retail segment is undergoing cost optimisation, he said.

However, factors like tax reforms building confidence in banking, large payers bringing pent up spend (which was on hold due to M&A speculations), recent uptick in retail and growth in energy should offset some of the share loss for the US, he told BusinessLine.

Base effect

The increased revenue from Europe was mainly due to a base effect where, in 2016, Europe slowed down because of Brexit impact, he added. On a relative basis, growth returned in the December quarter.

While Europe will continue to grow faster than the Americas, and gain more share, “we don't think that the relevance of the US is in a structural decline,” he said.

Europe, still an under-penetrated market, is not one single market but multiple markets. Any acceleration in penetration will need to be sustained over a period of time across multiple factors.

“We don't think that dependence on the US as a market will diminish significantly. The majority of existing clients are in the US, and the geography is poised for significant traction, given changes in the environment,” he said.

Boz Hristov, analyst with US-based Technology Business Research, said as legacy service lines become commoditised, India-centric vendors continue to lag multinational companies like Accenture and IBM in consulting brand and capabilities, and their opportunity pie is shrinking.

As a result, Indian majors operate — and continue to open — innovation/design centres to build local credibility and seek alternative revenue channels in new domains like marketing and advertising.

Value-to-price will remain a key lever for them to win business but getting invited to the table will remain a challenge in the short term, pressuring regional sales, he said.

Published on February 22, 2018
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