Offshore outsourcers turn cautious

The three primary publicly traded offshore outsourcing companies have turned cautious about the future even as their financial results remain strong.Among the worries--a weak dollar that's hurting revenue and margins, economic uncertainty, murky IT budgets and a concentration of financial services and retail customers.

The three primary publicly traded offshore outsourcing companies have turned cautious about the future even as their financial results remain strong.

Among the worries--a weak dollar that's hurting revenue and margins, economic uncertainty, murky IT budgets and a concentration of financial services and retail customers. Meanwhile, CIOs are antsy, commanding better pricing and there's a connection between outsourcing and poor customer service. Add it up and offshore outsourcing isn't the slam dunk it used to be.

To wit:

  • Wipro CEO Azim Premji, Chairman of Wipro, said Friday after the company reported earnings: "In the backdrop of significant economic uncertainty, our financial services and retail businesses demonstrated their resilience," said Premji. "Given the environment, we remain cautious in the near-term."

  • Satyam Chairman B. Ramalinga Raju on a conference call Friday said that demand in financial services remains "fluid." And the direction of demand remains unclear.

  • And last week Infosys was cautious about the outlook going forward. Infosys CEO S. Gopalakrishnan said some spending decisions were being delayed. From the conference call:

There are concerns about the economy. The macroeconomic conditions are the reasons for the delay. There is another reason also, we are also seeing that this time around there is lot more involvement from the leadership of the company in deciding on the budgets and the plans for the year and things like. Maybe that's another reason why there is some delay.

However, Gopalakrishnan also noted that demand remains robust and IT spending seemed to be holding up.

Now none of these companies are exactly hurting. Wipro's fiscal first quarter revenue was up 43 percent from a year ago to $1.39 billion (statement). Net income was up 15 percent to $190 million in the quarter. IT services revenue was up 40 percent from a year ago to $1.02 billion.

Meanwhile Satyam had revenue of $637.3 million in its fiscal first quarter, up 40.9 percent from a year ago (statement). Net income was $126.6 million, up 36 percent from a year ago.

And Infosys reported fiscal first quarter revenue of $1.15 billion, up 24.5 percent, and net income of $263 million.

But none of those quarters were perfect. Infosys had a cautious outlook and Wipro fell short of expectations.

The general theme here is that offshore outsourcers aren't seeing major cuts in spending yet, but it may just be a matter of time especially if customers are struggling and a weak dollar puts the kibosh on some of the gains from labor arbitrage.

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