Wipro expects clarity on client spending next year as Q2 profit falls

Wipro, India’s third-largest software services company, said profits fell in the second quarter of FY2017, as clients focus on cost cutting and hold back spending on “change-the-business” IT services, amid multiple factors of uncertainty.

Profits for the three months ended September 30, 2016 fell 8 percent to Rs 2,074 crore from Rs 2,246 crore in the year-ago period, computed according to international accounting standards, Wipro said in a press release on Friday after BSE market hours.

CEO Abidali Neemuchwala expects the Bengaluru-based company’s latest acquisition, cloud services provider Appirio, to help it move faster to tap the demand for cloud computing and digital services. Wipro announced on Thursday that it was acquiring Indianapolis, US-based Appirio for $500 million.

Appirio’s acquisition could add upwards of $200 million to Wipro’s annual revenues and give it the ability to provide software and consulting on workforce and customer management to clients including Coca-Cola and Facebook. For the December quarter of this financial year, which may include some revenue from Appirio’s sales, Wipro forecasts its IT services revenue to rise by as much as 2 percent to $1,955 million from $1,916.3 million for the three months ended September 30.

As the global uncertainty continues, Wipro estimates the lower end of its current quarter’s revenue to be unchanged from the second quarter.

“The demand environment for the IT services industry is evolving fast,” CEO Neemuchwala said in a conference with reporters. “The current demand for traditional services is driven by a focus on cost-saving on the ‘run’ side even as the investments in the ‘change’ side have not picked up at the same pace as expected perhaps due to caution in the context of US elections and Brexit.” Neemuchwala added: “In the new calendar, we believe clarity will emerge and we expect an uptick in the ‘change’ investments.”

By ‘run’, he’s referring to the IT services that clients need to maintain their existing business operations, and ‘change’ refers to projects that could support new lines of business and avenues of growth.
 
And the Indian IT industry still largely depends on the traditional maintenance of applications and IT infrastructure and has only been very modestly successful in tapping the demand for technology that supports change among the sector’s clients. Wipro’s results and forecast reflect the same uncertainty that larger rivals Tata Consultancy Services and Infosys are grappling with, as their biggest clients rethink IT spending due to a combination of factors including the upcoming US elections and the looming exit of Britain from the European Union (Brexit).