Q1 Results: Wipro profit falls, joins rivals in signalling shift to digital services

India's third largest IT company said June quarter profits fell 6 percent, even as it won 10 contracts in the cloud computing area

Harichandan Arakali
Published: Jul 19, 2016 05:47:17 PM IST
Updated: Jul 20, 2016 08:55:55 AM IST
Q1 Results: Wipro profit falls, joins rivals in signalling shift to digital services
Image: Reuters
Wipro CEO, Abidali Neemuchwala

Wipro joined larger rivals Tata Consultancy Services (TCS) and Infosys in signalling a strong pick up in demand for digital services, winning several such contracts, as India’s third-biggest IT services company reported its fiscal first-quarter results on Tuesday.

Profits for the three months ended June 30 fell by 6 percent to Rs 2,050 crore from the year-earlier period, according to international accounting standards, Bengaluru-based Wipro said in a press release after close of Mumbai trading on Tuesday. An ongoing slowdown in traditional outsourcing, an area in which there is little to differentiate one vendor from another, is putting pressure on the IT companies’ margins. Salary hikes in June also contributed to Wipro’s fall in profits in the June quarter.

“Overall we find the movement of the budget continues from the run-the-business areas to change-the-business. We see good traction in our ability to capture the change in business opportunities,” CEO Abidali Neemuchwala told reporters at a conference in Bengaluru. “We expect the trajectory of growth to build gradually.” 

The rate at which large businesses are adopting the ‘as-a-service’ business model is accelerating, bringing the combination of renting computing and storage units and running software on the internet mainstream. IT companies are winning orders to help their clients move more work onto cloud networks, but also to innovate revenue-generating solutions, provide data analytics and automation.

Tata Consultancy won four contracts for its neural networks based automation platform called Ignio, the country’s biggest IT company said on July 14, after reporting a 10 percent increase in quarterly profits. Infosys, which has built an Artificial Intelligence engine called Mana, has already won its first customer, which is also seeing results from using the technology, the No 2 company said the following day.

“The market is changing… traditional outsourcing continues to lose share to cloud-based infrastructure and software platforms,” John Keppel, president of ISG, a consultancy which tracks outsourcing contracts worldwide, said in a press release on July 14.

ISG monitors commercial outsourcing contracts with annual contract value (ACV) of $5 million or more. It found that the combined value of all such contracts in the June quarter was $7.9 billion, a 2 percent decrease from the year earlier period. This was as a result of a 17 percent drop in traditional IT outsourcing, which still accounts for about two-thirds of the outsourcing market.

Cloud-based outsourcing, however, has gone mainstream, rising by 45 percent over the year earlier period to $2.8 billion in the June quarter, ISG pointed out.

During the quarter, Wipro said it had won 10 contracts to help customers move chunks of their IT operations on to the internet. Customers include a large Australian broadband provider and a commercial bank in North America.

Currently Wipro’s “digital systems ecosystem” contributes about 17.9 percent of the company’s revenues at the end of the June quarter. This includes the related consulting business and the underlying IT plumbing and back-end systems that will be needed to deploy the actual digital solutions.

Wipro’s sales rose by 11 percent to Rs 13,600 crore for the June quarter. For the current quarter, which ends on September 30, Wipro expects its IT services revenues to increase by about 1 percent or remain unchanged. IT services accounts for almost all of Wipro’s revenues and profits, with a small portion contributed from selling products, including PCs and related peripherals.

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