Wipro’s results that are to be declared tomorrow would not have any element of surprise for the markets. The impact of the US economic slowdown on the Indian software industry has already been confirmed. And with Mr. Naryana Murthy setting a very achievable target of 30% all surrealistic expectations have been put to rest. NASSCOM too has lowered exports figures for the software sector to US$ 8.5 bn from a previous target of US$ 9.4 bn. The growth rate has been lowered from 40–45% from 52%. Therefore, the markets have discounted disappointing results in the company prices.
For Wipro, the year has been one of a reckoning. Mr. Vivek Paul took charge and set a goal for the company to grow to a size of US$ 4 bn by 2004. And more importantly the company’s mission is to be one of the top ten technology companies in the world. The company listed on the NYSE in October.
During the year the company kept its focus on the technology area and the contribution of Global IT services business (comprising of R&D services group, Enterprise solutions group, Global support services group) by the 3QFY01 had gone up to 62% of the revenues compared to 56% for 1HFY01. The R&D services group contributed 50%. This R&D group is focused on technology solutions. Telecom and Inter-networking practice contributed to 30% of the revenues of the group. Effectively the contribution from the technology domain was 31% of Wipro’s revenues.
In June, Wipro released a suite of Telecom Solutions for convergent networks. These Solutions, Wipro OSS Smart and Wipro WAP Smart, would help Internet and Telecom Service Providers in the areas of operation support, systems integration and wireless application development. Wipro was the first in India to develop BluetoothTM Baseband Controller Synthesizable Core, a solution compliant with BluetoothTM version 1.0 B. In January Wipro announced a suite of ready-to use hardware and software products and services for the BluetoothTM short-range wireless standard.
The lightening response from Wipro to emerging technologies is an indication of Wipro’s commitment and a proof of its capabilities to become a leading technology company. However, considering the current environment the company will be certainly looking at tough market conditions. What will provide an upper edge to the company will be its strong brand name and an established base of clients.
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The company has also positioned itself very strongly in the enterprise solutions markets as an end-to-end solutions provider. The company was however cautious and decreased the contribution from e-commerce in 3QFY01, unlike HCL Technologies and Infosys, which aggressively targeted the market. The share of enterprise solutions division came down to 45% of the Global IT services revenues.
Wipro Infotech contributed 23% to the revenues (29% in 1HFY01). This group too saw an increase in contribution from solutions and service segment. The operating margins for this group expanded from 3.2% in FY00 to 10.8% in 3QFY01. This is due to the spin off of its peripherals business in September 2000, which was a low margin business. Wipro has retained only 39% of its stake in the Wipro ePeripherals and the remaining 61% is with the employees.
The decision to spin off the unit was guided by the fact the Wipro focus on software had led to neglect in the division, which as a result was failing to keep pace with the global players entering the Indian markets.
The Consumer care and Lighting business contributed to 12% of the revenues in 3QFY01 compared to 11% for 1HFY01. Lighting products showed a YoY growth of about 25% and toilet soaps grew at 20% for the nine months ended December 2000.
We expect these trends to continue. Wipro will increasingly concentrate on technology services. But considering the decrease in IT spends the company may find it increasingly difficult to gain customers for its solutions in the area of technology. Also, a majority of the revenues of the R&D division come from telecommunications software. With all telecom majors issuing profit warnings Wipro might see some business decreasing. With increasing contribution from the Global IT services, the company might show improvement in operating margins.
According to Mr. Azim Premji the company would be not be impacted by the slowdown due to its small share of the global markets. However, with others already taking a hit and the industry in general lowering its expectations the chances that Wipro will escape unscratched are very dim. But the fact remains if anybody can, Wipro should be one of the best contenders to come out unscathed. Even if it takes a hit it should be one of the first to recover.