Wipro Q3 Rises 10%; IBM, Other Tech Results Point To Robust IT Demand

20 January, 2012

Wipro Ltd, India’s No.3 software services exporter, flagged the uncertain global economic environment as a concern after roughly meeting expectations with a 10 per cent rise in quarterly profit, mainly helped by a weaker rupee.

The company, whose clients include Citigroup, Cisco and Credit Suisse, said however that it had received positive feedback from clients on its restructuring.

Wipro said it expects $1.52 billion to $1.55 billion revenue from its IT services unit, which contributes three-quarters of its total sales, in the March quarter, a sequential rise of nearly 1 to 3 per cent.

The forecast was lower than 2-4 per cent rise projected by analysts at brokerage CLSA.

Wipro and larger rivals Tata Consultancy Services Ltd and Infosys Ltd are part of India’s $76 billion software services industry that gets more than 90 per cent of its revenue from the United States and Europe.

“We continue to execute on our strategy and propel the business towards a higher growth trajectory,” said Wipro’s billionaire chairman, Azim Premji, in a statement.

“The overall macroeconomic sentiments continue to be uncertain and we are monitoring it closely,” he said.

Second-ranked Infosys last week cut its dollar sales forecast for the fiscal year ending in March, citing potential delays in orders by clients because of the euro zone debt crisis.

Wipro’s consolidated net profit rose to Rs 14.56 billion in its fiscal third quarter ended December 31 under international accounting standards from Rs 13.19 billion a year earlier.

Sales rose 28 per cent to Rs 99.97 billion as the company added 39 new clients in its IT services business. Analysts polled by Reuters expected profit of Rs 14.81 billion on net sales of Rs 97.41 billion.

IT services revenue climbed to $1.51 billion, up 2.2 per cent from July-September.

“We have seen positive feedback from customers and employees on our restructuring approach,” said T.K. Kurien, chief executive of IT business.

Kurien took over last April after a management shake-up by Premji to reverse the widening gap between Wipro and its larger rivals.

Tata Consultancy, the No. 1 Indian software services exporter, met market expectations with a 23 per cent rise in quarterly profit this week, and said its pipeline of orders is “very healthy”.

The euro zone debt crisis is a worry for the sector that has been looking to increase its sales to the region to hedge against excessive exposure to the United States, which brings in about half of Wipro’s IT services sales.

Indian software services companies also face fierce competition from bigger global rivals including IBM Corp and Accenture Plc.

Wipro’s shares, valued at about $19.55 billion, fell nearly 19 per cent in 2011, compared with a 16 per cent drop in the sector index and a roughly 25 per cent fall in BSE Sensex .BSESN.

IBM, Other Tech Results Point To Robust IT Demand 

A strong outlook from IBM and decent results from Intel Corp and Microsoft Corp suggest that corporate decision makers are shaking off nervousness about economic growth and boosting spending on technology.

IBM, the world’s largest technology services company, easily beat Wall Street’s fourth-quarter profit expectations and promised earnings growth of 10 per cent this year.

Intel, the leading microchip maker, announced ambitious spending plans after reporting quarterly results that topped scaled-back analyst forecasts.

Microsoft’s results were largely in line with expectations, with growth in its servers and tools business offsetting weakness in Windows sales to PCs.

“Those results look largely favorable,” said JMP Securities analyst Alex Gauna. “So far what we have seen in technology, looks like we are turning the corner and things are getting better. Turning the corner in terms of cleaning the excess inventory in the channel and seeing a better demand outlook.”

Microsoft, IBM and Intel have a combined market capitalization of about $580 billion, representing 15 per cent of the Dow Jones industrial index. Shares of IBM shares rose 3 per cent in extended trading after its results, while Microsoft shares rose 2 per cent and Intel shares rose 1 per cent.

The only downer in the tech world on Thursday was Google Inc, whose quarterly results fell far short of high expectations set by strong online shopping during the holiday season, sending its shares down 9 per cent.

“Expectations had got ahead of themselves for Google, largely because investors don’t have a good feel for what happens outside the US,” said Stifel Nicolaus analyst Jordan Rohan. “North America has remained strong, but there are parts of the world where there’s a lot of economic pressure,” he said, pointing to austerity measures in Europe.

IT Spending Holding Up

Prior to Thursday’s results, other technology giants had sent mixed messages about global IT spending.

Software maker Oracle Corp, for example, missed expectations last month and outsourcing company Accenture Plc spooked investors with its cautious quarterly outlook.

But Oracle rival SAP AG pleased the market last week with sales and profits that beat estimates, signaling global companies were confident enough to spend more on technology.

IBM, a tech bellwether because of its global reach and scale, said strong signings of services contracts and its services backlog put the company in a solid position as it starts the year.

“When you look at the overall pipeline going into 1Q for software and services … I think they look pretty good,” IBM Chief Financial Officer Mark Loughridge said on a call with analysts on Thursday.

Asked if, like Oracle, IBM was seeing longer approval times for tech spending by companies, Loughridge said: “As far as lengthening of the sales cycles, more approvals, I do think people and CFOs are cautious about their business and they want to make sure they have the right processes engaged and we did see that.”

Consumer vs Corporate

Sales at Microsoft, the world’s biggest software maker, were strong even though its profit slipped as slower personal computer sales to consumers hurt its Windows software business.

But even as consumers fled to cheaper tablet computers from rivals, Microsoft boasted strength from business customers and in emerging markets where computer demand was healthy.

“We all expected the PC market to be weak and the Windows business was down because of that. But the server and tools business is growing well,” said Sunit Gogia, an equity analyst at Morningstar.

Kim Forrest, a senior equity research analyst at Fort Pitt Capital Group in Pittsburgh said that all the tech results showed strong demand for products from which corporations expect a future benefit, such as improving employee productivity.

“It means despite a slowing economy in Europe and other places there’s companies still spending on productivity-enhancing technologies,” Forrest said. “There has been a lot of M&A in the past years and the companies that made smart investments are seeing them pay out.”


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Wipro Q3 Rises 10%; IBM, Other Tech Results Point To Robust IT Demand

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