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Wipro: Applying thought - Views on News from Equitymaster
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  • Dec 15, 2001

    Wipro: Applying thought

    In September 2001, Wipro became the second company in the world to have all thirteen Bluetooth profiles (Version 1.1) with product qualification status from the Bluetooth Qualification Body (BQB). Though the Bluetooth products and services are a long way from becoming commercially viable, Wipro is already ready with its set of offerings to corner a share of the market opportunities arising in the future. That is the way things are at Wipro – ready for the future.

    As global companies came to India to avail the advantage of low cost, software companies had a host of markets to tap. Most of the companies went into the relatively easier job of automating business processes. However, some chose to be different. They chose to play a part in developing the future technologies by working on R&D contracts outsourced by global technology majors. Wipro was one of the pioneers in this area.

    As a result of its endeavors, in FY01, 50% of Wipro Technologies revenues (Global IT services arm of Wipro) were from R&D services. This translated to revenues of Rs 8,845 m (US$ 184 m), an 18% market share of the total R&D services pie. This makes Wipro the largest player amongst the listed Indian companies in the segment. In 2QFY01, the revenues from the group showed a strong sequential growth of 9%, thus contributing 52% to the revenues of Wipro Technologies.

    There are three revenues stream for the R&D services division. They are the Embedded and Internet access group (E&IA), the Telecom and Inter-networking group and the Telecom and Internet Service providers group.

    % Contribution to revenues of the R&D services group

    E&IA group offers software design and development services in the areas of embedded systems, computing platforms and Internet access markets. The projects executed include device, drivers, protocol stacks, system-on-a-chip solutions. The industry verticals that the segment provides solutions to include consumer electronics, automotive electronics, storage companies, home networking and mobile computing.

    Of these, two areas that could show strong growth could be storage technologies and mobile computing. With the need to store data burgeoning and increased security concerns (post September 11) data storage is being outsourced to data storage providers like IBM. This is due to the fact that data being stored has to have near 100% availability. This requires state of the art IT infrastructure, which is not feasible for business houses to maintain. Consequently, the number of companies outsourcing their data storage requirements is increasing. The companies that are offering these services are faced with the task of providing rapid access to the data stored. Thus, there are various issues of proprietary standards and compatibility. The growing markets will fuel the need for solutions, which companies like Wipro are vying to provide.

    Wipro’s telecom and networking group provides services to networking and communications equipment manufactures like Nortel, Cisco and Lucent. These companies are faced with the task of improving the speed of networks. Thus, the routers have to switch faster and provide quality of service (voice, data and video) as required. Wipro with its expertise in switches and routers, VoIP solutions, wireless networks and interoperability services helps these companies realize the imperatives. Wipro provides services to wired, wireless and broadband Internet infrastructure providers.

    In the recent times these companies have posted very disappointing financials due to the technology melt down. This has raised concerns about visibility of Wipro’s revenues from these companies. However, the fact remains that though Internet has not replaced traditional business models, it has proved to be a very effective and useful delivery channel along with the conventional ones. Therefore, increasingly businesses will adapt to the Internet. Consequently, demand for Internet infrastructure is going to increase. Thus, in the long term as these global technology majors race to meet global demand, Wipro could see strong growth in revenues from the R&D activities outsourced.

    The third group i.e. Telecom and Internet Services group, provides systems integration (SI) services to the carrier companies (the companies that bring the Internet and Telecom services to the retail markets). In 1QFY02, Wipro bagged a systems integration contract of US$ 70 m (Rs 3,360 m) for a telecom subsidiary of Lattice Group, UK during the quarter. The size of the contract is easily one of the biggest for the Indian software industry. The company is expected to earn about US$ 30 m (Rs 1,455 m) from the project during second half of the fiscal 02.

    R&D group 1QFY02 2QFY02 Change
    Telecom and Internet working 1,563 1,421 -9.1%
    Embedded Systems and Internet Access (E & IA) 990 852 -13.9%
    Telecom and Internet Providers 156 682 336.3%
    Total 2,709 2,955 9.1%

    The company’s revenues from the E&IA, Telecom and Internetworking groups have shown a decline in the past. This is due to the fact that its clients in these area are facing troubled times due to slowdown in their largest market, the US. However, it’s only a question of time before the revenues show growth once gain.

    More than revenue growth, the critical issue here is that R&D outsourcing is an increasing trend. Also, since the offerings in this space are technology intensive, not all companies can offer these services. The barrier to entry is high. Also, superior service offerings require superior skill sets. Again not many companies are able to offer the kind of talent required to provide solutions in this space. But Wipro can. Since these solutions and services are knowledge intensive, the realisations are also better.

    To quote Mr. Azim Premji, Chairman Wipro Ltd., “ …made us realize that it is not so much the environment as our own mind that determines what we can do. What the mind can conceive, it can achieve, provided it is backed by unstinting hard work”. Thus, Wipro continues to grow using the most sensible approach – by applying thought.



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