Adith Charlie, Mumbai
The Hindu Business Line
The global financial crisis seems to have prompted client companies to outsource IT projects of a more traditional nature as is evident from the September quarter numbers of major IT firms.
Indian IT firms have shown a significant jump in sequential revenues from the application maintenance and development (ADM) practice for the quarter ended September 30.
While ADM revenues have gone up by 13.7 percent for Tata Consultancy Services, it has gone up by 9.8 percent and 8.7 percent for Infosys and Satyam respectively.
Similarly, the custom applications practice of HCL Technologies has gone up 7 percent compared to the previous sequential quarter.
ADM has traditionally been the bread and butter business of IT companies.
And even within ADM, it is the application development part (which entails maintenance of applications already developed) that would show higher growth in the September quarter, said Rishi Maheshwari, Independent IT Analyst.
“This is because volume growth has hardly been there on a quarter-on-quarter basis,” he said.
However, before the start of the US recession there was a visible trend of ADM component slowing down (as a percentage contribution to overall company revenues) because Indian companies had begun to pursue more of high-end work such as consulting services, product engineering, infrastructure management etc.
Unfortunately, analysts say that these high-end outsourcing initiatives are a part of the client’s discretionary budget, which is clearly under pressure.
“Given the volatility in the market, there is a decrease in incremental IT spending. And hence there is an increase in outsourcing contracts that entail maintenance of existing applications (or development around the existing applications) rather than transformational deals,” said Ashish Basil, Partner, Transaction Advisory Services, Ernst & Young
The migration from an old IT environment to a new IT set-up (including applications, infrastructure etc) is an example of a project that is transformational in nature.
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