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By Mel Duvall
(CIOZone) The tech sector helped lead Wall Street to gains this week as a steady stream of companies from Apple, to IBM and EMC posted solid results. The overarching message from the heads of the bellwether companies seems to be that budgets have stabilized, and growth may not be far off.
The picture, however, seems to be less clear for one key technology sector: outsourcing. Outsourcing vendors had predicted they would gain from the global economic recession. Instead, it appears that customers have been bringing some work back home.
Earlier this week, Tech Mahindra posted first-quarter fiscal results which saw a 49% drop in profits. Tech Mahindra, you may recall, is the company that picked up fraud-plagued Indian outsourcer Satyam. The company said its results were impacted by debt costs associated with the transaction, but it also noted revenues were down in the quarter from 11.16 billion rupees to 11.3 billion rupees.
On the positive side, Indian outsourcing rival Wipro posted an impressive second quarter performance. Revenues increased 6% on a year-over-year basis to $1.3 billion, and profits leapt 31% to $224 million.
Wipro chairman Azim Premji said the company had taken steps to adapt to the new economic reality and was prepared to move forward. “We are starting to see the first signs of stability in the business as ramp downs start to taper off and volumes start to stabilize,” Premji said.
A survey released earlier this week revealed just how dramatic those "ramp downs" have been. Industry watcher Technology Partners International reported that the dollar value of outsourcing contracts awarded in the first half of 2009 fell 22% compared with the first half of 2008. This comes despite the fact that many had predicted outsourcers would benefit from the economic downturn as companies looked to shave costs.
“The first half of 2008 was extremely strong for the outsourcing industry, which makes year-over-year comparisons tough,” Technology Partner President Mark Mayo said. “In addition, over the past six months, companies have been more tentative and tactical about making sourcing decisions as they try to navigate these challenging economic times.”
Mayo also pointed to signs of stabilization in markets, particularly in the U.S. Still, the full total contract value of outsourcing deals awarded in 2009 could fall below $80 billion, which has not happened since 2001.
“Despite these bright spots and some signs of a pickup in early-stage market activity as we enter the third quarter, the balance of 2009 is likely to remain challenging,” Mayo said.
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