Wednesday, June 17, 2009

TCS: demand decline halts

A slowdown in global demand for outsourcing has been halted but customers are still demanding lower prices, the chief financial officer of Tata Consultancy Services, India's biggest software exporter, said.

"Now we have to really see whether this arresting of decline just leads to a plateau where there will be a flat demand for a period of time," S. Mahalingam told a news conference on Wednesday.

An army of low-cost English-speaking engineers had driven an outsourcing boom in India, but turmoil in global markets and a recession in the United States, which accounts for more than half the sector's revenue, have slowed the scorching pace of growth.

"Companies are definitely cautious in terms of their spends," Mahalingam said.

Gartner Inc, the world's biggest technology research company, this month sharply curtailed its forecast for information technology spending this year reacting to larger-than-expected budget cuts by companies during the first quarter.

It now expects IT budgets to fall 4.7 percent this year, compared with forecast three months ago that called for budgets to rise 0.16 percent from 2008.

Mahalingam said Tata Consultancy was focused on reining in costs related to areas such as staff salaries and sales and marketing expenses to offset the impact of pricing pressure on margins.

"Pricing requests definitely keep coming even now," he said. "As we have said earlier, request comes for anything from 5-15 percent."

Tata Consultancy posted a 4.6 percent rise in Jan-March net profit and said its overseas clients were demanding fee cuts in a tough environment.

This was the fifth consecutive quarter of single-digit year-on-year quarterly profit growth for the Tata Group firm, after seeing a rise of more than 20 percent in the previous quarters.

Tata Consultancy and close rival Infosys Technologies are expanding in Europe and elsewhere to cut their dependence on the U.S. market and Mahalingam said the company was expected to see good growth from newer markets such as western Europe, Brazil and India in the years ahead.

Shares in Tata Consultancy, which has a market value of about $16 billion, closed 2.8 percent lower at 379 rupees, in line with a 2.9 percent drop in the broader market.

The stock has risen 58.5 percent this year, outperforming the broader market and the sector index, after falling about 56 percent in 2008.

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