Global-O&O

Q2,2011 Earnings: Quarter Ending September 30 2010

FACTS
• 27 new clients added.
• # of active clients – 592
• 337 million dollar clients, 27 50+ million dollar clients
• Top 10 client contribute 26.7% of revenue
• Larger deals coming back to the markets. Not at the level pre financial crisis but coming back. Infosys did 9 deals in this quarter and some of them were $200 million plus.
• Total Contract Value of deals closed first half was $865 million.
• 137 Global Fortune 500 as clients and 124 US Fortune 500 are clients
• Projected to hire 40,000 this year vs earlier forecast of 36,000. Added 14,000 this quarter, will add another 11,000 next quarter.
• Vertical growth in financial services, retail. Energy and Utilities & Manufacturing in Europe.
• 12,000 promotions this year
• Financial Services M&A related projects tapering down and move to run the bank model gaining traction.
METRICS
• Revenues – $1.496 billion QoQ – (+10.2), YoY – (+29.6%)
• Net Income – $374 million QoQ – (+14.7%), YoY – (+18.0%)
• Earnings forecast for next quarter – between $1.413 to $1.427 billion, YoY growth between 22.4% and 23.7%
• Earnings forecast for next quarter – between $1.547 billion and $ 1.562 billion. YoY growth forecast of 25.6 to 26.8%
• Earning forecast for fiscal year 2011 – Revenue between $5.95 billion to $ 6.00 billion. YoY growth of 24.0% to 25.0%
• Cash – $ 5.211 billion
• 14,264 gross addition of employees, net addition of 7,646
• 122,468 employee strength end of September 2010
• 115,972 software employees ( 99,667 – billable, 5,178 Banking Product Group, 11,127 trainees)
• 6,4,96 – Sales & Support
• Attrition Rate – 17.1% ( compared to 13.6% last quarter, 11.6% 2 quarter prior) BPO had larger number of people leaving 5,411 compared to 3,589 last quarter.
• Majority of the people leaving are those between 2 to 6 years of experience
• Pay raises of 14% offshore ( India) and 2-3% onshore
• Infosys BPO employee strength – 18,560, Australia – 443, China – 2,729, Consulting – 654, Mexico – 454, Sweden – 17, Brazil – 133
• Revenue break up – North America – 65.8%, Europe – 21.8%, India – 2.1%
• Application Development – 39.1%, BPM – 5.6%, Consulting Services and Package Implementation – 25.8%, Infrastructure Service – 6.2%, Product Engineering Services – 2.5%, SI – 5.7%, Testing Services – 7.6%
• Insurance,Banking – 35.4%, Manufacturing – 18.9%,Retail -14.4%, Telecom- 13.3 %, Energy & Utilities – 6.3%
• Subsidary Revenue (millions USD) BPO– 79.72, Consulting – 46.81, China – 19.28
• Net Income (millions USD) BPO– 10.33, Consulting – 5.27, China – 2.03

LEARNINGS
• Deals coming in from Operations as well as transformation deals started to come back.
• Regulatory changes in the US , specially around financial services is something which the offshore vendors will continue to be cautious on. A number of them are also leveraging this opportunity by building risk management, compliance, data reporting capabilities as part of the service offering.
• Retails Sectors continue to invest in reaching out to the digital consumer and that is an opportunity which a number of firms are leveraging with the global delivery model.

Q1, 2011
FACTS
• 38 new clients added.
• # of active clients – 590
• 341 million dollar clients, 26 50+ million dollar clients
• Top 10 client contribute 26.1% of revenue
• 137 Global Fortune 500 as clients and 124 US Fortune 500 are clients
• Projected to hire 36,000 this year vs earlier forecast of 30,000. Increased numbers are due to projected demand and also to mitigate attrition risks ( 2,000 for growth and 4,000 for attrition)
• Pricing stable but overall pricing came down by 1.6 to 1.7% this quarter
• $ 15 – $16 million dollars in visa expenses per quarter
• Retail Spending and Energy & Utilities spending growth is because of discretionary spending
METRICS
• Revenues – $1.358 billion QoQ – (+4.8), YoY – (+21%)
• Net Income – $336 million QoQ – (-6.6%), YoY – (+4.2%)
• Earnings forecast for next quarter – between $1.413 to $1.427 billion, YoY growth between 22.4% and 23.7%
• Earnings forecast for next year – between $5.72 billion and $ 5.81 billion. YoY growth forecast of 19% to 21%
• Cash – $ 4.658 billion
• 8,859 addition of gross employees, net addition of 1,026 this quarter
• 114,822 employee strength end of June 2010
• 108.495 software employees ( 95,863 – billable, 5,029 Banking Product Group, 7,603 trainees)
• 6,327 – Sales & Support
• Attrition Rate – 15.8% ( compared to 13.6% last quarter, 11.6% 2 quarter prior) BPO had larger number of people leaving 5,411 compared to 3,589 last quarter.
• Majority of the people leaving are those between 2 to 6 years of experience
• Pay raises of 14% offshore ( India) and 2-3% onshore
• Infosys BPO employee strength – 18,609, Australia – 394, China – 1,765, Consulting – 605, Mexico – 414, Sweden – 17, Brazil – 116
• Revenue break up – North America – 67.3%, Europe – 20.3%, India – 1.7%
• Application Development – 40.8%, BPM – 5.7%, Consulting Services and Package Implementation – 24.9%, Infrastructure Service – 6.9%, Product Engineering Services – 2.1%, SI – 4.2%, Testing Services – 7.3%
• Insurance,Banking – 36.1%, Manufacturing – 19.5%,Retail -13.2%, Telecom -14.1%, Energy & Utilities – 6.0%
• Subsidary Revenue (millions USD) BPO– 78.14, Consulting – 38.55, China – 15.81
• Net Income (millions USD) BPO– 6.42, Consulting – 3.25, China – 1.69

LEARNINGS
• Europe markets are slower in recovery and growth in these markets will continue to lag and be slow to come back. A number of outsourcing vendors are cautious about the European market growth
• Budgets for firms are closed and the firms will spend the budget this year compared to last year when the budget were reopened during the year..

Q1,2011 Earnings: Quarter Ending June 2010

FACTS

• 38 new clients added.
• # of active clients – 590
• 341 million dollar clients, 26 50+ million dollar clients
• Top 10 client contribute 26.1% of revenue
• 137 Global Fortune 500 as clients and 124 US Fortune 500 are clients
• Projected to hire 36,000 this year vs earlier forecast of 30,000. Increased numbers are due to projected demand and also to mitigate attrition risks ( 2,000 for growth and 4,000 for attrition)
• Pricing stable but overall pricing came down by 1.6 to 1.7% this quarter
• $ 15 – $16 million dollars in visa expenses per quarter
• Retail Spending and Energy & Utilities spending growth is because of discretionary spending increase.

METRICS

• Revenues – $1.358 billion QoQ – (+4.8), YoY – (+21%)
• Net Income – $336 million QoQ – (-6.6%), YoY – (+4.2%)
•  Earnings forecast for next quarter – between $1.413 to $1.427 billion, YoY growth between 22.4% and 23.7%
• Earnings forecast for next year – between $5.72 billion and $ 5.81 billion. YoY growth forecast of 19% to 21%
• Cash – $ 4.658 billion
• 8,859 addition of gross employees, net addition of 1,026 this quarter
• 114,822 employee strength end of June 2010
• 108.495 software employees ( 95,863 – billable, 5,029 Banking Product Group, 7,603 trainees)
• 6,327 – Sales & Support
• Attrition Rate – 15.8% ( compared to 13.6% last quarter, 11.6% 2 quarter prior) BPO had larger number of people leaving 5,411 compared to 3,589 last quarter.
• Majority of the people leaving are those between 2 to 6 years of experience
• Infosys BPO employee strength – 18,609, Australia – 394, China – 1,765, Consulting – 605, Mexico – 414, Sweden – 17, Brazil – 116
• Revenue break up – North America – 67.3%, Europe – 20.3%, India – 1.7%
• Application Development – 40.8%, BPM – 5.7%, Consulting Services and Package Implementation – 24.9%, Infrastructure Service – 6.9%, Product Engineering Services – 2.1%, SI – 4.2%, Testing Services – 7.3%
• Insurance,Banking – 36.1%, Manufacturing – 19.5%,Retail -13.2%, Telecom -14.1%, Energy & Utilities – 6.0%
• Subsidary Revenue (millions USD)  BPO– 78.14, Consulting – 38.55,  China – 15.81
• Net Income (millions USD)  BPO– 6.42, Consulting – 3.25, China – 1.69

LEARNINGS

• Europe markets are slower in recovery and growth in these markets will continue to lag and be slow to come back. A number of outsourcing vendors are cautious about the European market growth
• Budgets for firms are closed and the firms will spend the budget this year compared to last year when the budget were reopened during the year.
• Larger firms continue to do well and grow and the gap between smaller and larger firms continues.
• Offshoring is becoming more commoditized and risk factors associated with offshoring are part of standard operating procedures for firms doing global business.

SOURCE: New York Times
DATE: April 20th, 2010

LINK

Now compare this with US based revenues of Indian Offshore firms

What does it  mean ?

Indian based firms still heavily dependent on US markets for their revenues. This is given the basic component of their offering, which is all structured around leveraging low cost location talent arbitrage for serving higher cost based clients (aka US, UK, western Europe). Plus the fact that the total spend in US for IT, Outsourcing is significantly higher than that say in India.

For multinational firms  globalization opens up additional revenue streams outside of the US as is evident by their growing revenue stream in non-US locations. With firms like IBM with a total employee strength of 400,000+ and offering services globally, location is becoming less important for delivery as they move towards seamless delivery model.  A number of the global firms will continue to redistribute their staff for delivery as they build global delivery models and make them integrated. So job creation by these firms will follow a similar trend in their revenue growth internationally, number of opportunities created outside of the US will be a higher percentage of the net job addition for Multi national firms.

SOURCE: Poughkeepsie Journal
DATE: March 29th, 2010

IBM which has recently stopped disclosing the breakup of their headcount across the globe has raised a lot of flags amongst folks seeing that as an accelerated trend to move work offshore.

Here are some headcounts of some “US” firms. Not all of them give a breakup of their locations but some do. Compare that with the Indian firm headcounts which are primarily centered in India (Offshore Vendors headcount 2009)

1. IBM – 25% of their workforce in the US . Total workforce 400,000. In the 90s the ratio was about 50-50
2. Capgemini – Global headcount 91,621. Their headcount in India is expected to be around 35,000 by 2010 (Capgemini headcount to grow to 35000 )
3.  HP – 304, 000 global workforce ( end of Oct 2009)
5.  Microsoft – 93, 000 global workforce a/o June 2009. 56,000 in the US and 37,000 international
6.  Cisco – 65,550 a/o July 2009. 28, 500 outside the US.
7. GE – 134,000 in the US and 154,000 outside the US in 2010
8. Apple – 34,300 global
9. Texas Instrument – 26,584
10.  CSC – 92,000
11. Accenture – 176,000

Compared to what the ratios were a decade ago, the workforce has become more global. Shifting jobs is the new necessity for global companies and not all is related to labor arbitrage.  To look at how the job shifting has happened it is important to also look at the revenue these firms now get globally. A number of these firms continue to also increase their revenue share from outside the US and see higher growth rates in those economies. So they need local presence and do need global delivery capabilities as their clients the fortune 500 firms also require global footprint for delivery.

LINK

DATE: March 9th, 2010

Here are some attrition numbers for some of the vendors as per their last quarterly report ( End of Dec 2009).

1) Infosys:
Attrition at 11.6%,
Total Employee Strength 109,882,
Net Addition this quarter 44,29 (Additional Details)
2) TCS:
Attrition Rate – 11.5% ( IT Services – 10.8%, BPO – 18.3%)
Total Employee Strength  143,761
Net Addition 7,692  (Additional Details)
3) Wipro:
Attrition Rate – IT services – 14.3%, BPO – 15%)
Total Employee Strength 102,746
Net Addition 4,855
4) Cognizant:
Attrition Rate: 11.2%
Total Employee Strength: 73,400
Net Addition : 10,300 ( includes UBS acquisition) (Additional Details)
5) Genpact:
Attrition Rate: 23% ( Pure play BPO firms have higher attrition)
Total Employee Strength: 38,600
Net Addition : 2,400 (Additional Details)
6) WNS:
Attrition Rate: 31% ( Pure play BPO firms have higher attrition)
Total Employee Strength: 21,392
Net Addition : 149 (Additional Details)
7) Syntel:
Attrition Rate: 11.2%
Total Employee Strength: 12,567
Net Addition : 1,080
iGate:
Attrition Rate:
Total Employee Strength: 6,910
Net Addition : 530
9) HCL Technologies:
Attrition Rate: IT Services – 12.8%, BPO Services – 21%
Total Employee Strength: 55,688
Net Addition : 1,691
10) EXL Services:
Attrition Rate: 22.6% ( billable)
Total Employee Strength: 10,736
Net Addition : 243
10) mPhasis :
Attrition Rate: 
Total Employee Strength: 35,690
Net Addition : 2,166

SOURCE: Business Week
DATE: March 10th, 2010

As per Celent, Financial services companies spend in 2009:
$350 billion globally on IT
$120 billion in North America.
50% spend on : software, internal head count, and external services.
70% of this spending has gone to keep the lights on and other routine maintenance expenses.
The investment required to replace and modernize applications that are well past their sunset date is estimated to be between $250 billion and $300 billion

http://www.businessweek.com/globalbiz/content/mar2010/gb2010039_433787.htm

SOURCE: Government of India Survey
DATE: March 3rd, 2010

As per Government of India Minstry of Labor and Employment report  on employment numbers in India last quarter 2009 (LINK).

Jobs added in IT/BPO sector 487,000 in export oriented work. Total # of jobs added in IT/BPO sector is close to 570,000

That seems like a fairly large number given that the hiring overall in the year was muted but this is what the big man says!

As per Gartner

Global BPO revenues 2010:
$169.6 billion

Global ITO revenues 2010:
$279 billion

DATE: Jan 11, 2010

Infosys earnings looks like a positive harbinger for IT offshoring vendors and a positive turn in the markets.

FACTS

• 32 new clients
• Growth of 12.2% in their Top 10 clients which contribute to 27.5% of total revenues – Going deeper within existing clients
• Stabilization in pricing. Pricing up 1.1%
• Growth in BFSI, Energy,
• Manufacturing,Telecom, flat
• Retail lagging
• Growth in US geographies, Europe still lagging
• Net addition of 4,429 people this Quarter
• Total employee strength 109,882
• Attrition at 11.6%
• Plans to hire 6000 people in Q4 FY10, total hire for FY10 24,000. This is higher than 20,000 projected last quarter
• Infosys BPO total strength 16,874, net addition 841
• Setup Infosys Public Services Ltd in the US with a capital base of $ 5 million to pursue Federal/State Government deals in the US
• 119 of the Fortune 500 companies are clients of infosys
• McCamish Acquisition added 1.9 million in revenue for BPO this quarter,Q4 expected to be $7 million contribution
• Introduced Flypp – platform for app store for small to medium sized telecom service provider
• Infosys Consulting and China subsidiaries profitable. China operations servicing non-domestic market primarily.
• 1,600 people in China

METRICS

• Revenues – $1.232 billion QoQ – (+6.8%), YoY – (+5.8%)
• Net Income – $334 million QoQ – (+5.4%), YoY – (+.6%)
• Fiscal Year 2010 ( ending March 2010) Guidance – $4.75 – $4.76 billion, YoY growth 1.8% to 2.0%
• 3.1 billion dollars in cash
• Revenue break up – North America – 66.6%, Europe – 21.9%, India – 1.2%
• Application Development – 42.3%, BPM – 5.9%, Consulting Services and Package Implementation – 23.3%, Infrastructure Service – 7.1%
• Insurance,Banking – 34.6%, Manufacturing – 19.3%,Retail -13.1%, Telecom -16.2%, Energy & Utilities – 6.1%

LEARNINGS

• US markets are and will continue to be key drivers for growth for outsourcing vendors.
• Some of the large vendors like Infosys are leveraging their innovation and the market changes to offer services and products which fit the new paradigm. New pricing models, building platforms like Flypp are some of the product innovations coming from Indian vendors.
• Financial services firms continue to be the drivers for growth for outsourcing vendors. With the industry maturing and a number of financial firms busy with risk management, regulatory, M&A activities are leveraging outsourcing providers to manage cost and create services.
• Cost reduction and cost management continues to be the number one reason driving offshoring activities.
• Cloud competing still lagging in the developed countries. Infosys sees emerging countries leapfrogging and adopting cloud computing earlier.

Click on the picture for larger image.

Cognizant earnings and learnings