KOLKATA
- While a long, rough two-year ride for the global
information technology industry appears to be just about
over, the implications for the United States are
ominous. Commercial activity is picking up strongly in
the US, and job data is starting to come around -
although not in IT. India is a major beneficiary, with
companies reporting spectacular quarterly earnings.
Two of the US's biggest IT firms - Hewlett
Packard and IBM - have told their employees that there
will be almost no hiring in the US, and that all new
jobs will be created overseas. California's Silicon
Valley, the cradle of the IT revolution, lost 165,000
jobs in the two-year period of the dotcom bubble crash,
a decrease of 15.6 percent. San Francisco lost 110,000
jobs, down 10.2 percent.
None of those jobs seem
to be returning, although global sales of
semiconductors, for instance, are expected to grow 15.8
percent this year and 19.4 percent in 2004. Asia,
according to JF Asset Management in Hong Kong, has been
the biggest factor driving growth in recent years, with
semiconductor market share more than doubling to 38
percent over the past decade. China is now the world's
third-largest market for semiconductors, with sales of
US$19 billion in 2002.
Taiwan now has 19 wafer
fabrication plants in China, which in the first half of
2003 exported US$44 billion worth of IT goods. That is
more than 20 percent of total exports. Personal computer
sales, which account globally for a third of
semiconductors, rose in the Asia Pacific region by 11
percent year-on-year to 7.7 million units
But
Stephen Levy, director and senior economist of the
Center for Continuing Study of the California Economy in
Palo Alto, told Asia Times Online: "I haven’t seen any
sign of improvement in Silicon Valley. We are seeing
improved sales, earnings and stock prices. We are seeing
no net hiring."
Singapore, with one of Asia’s
highest per-capita living standards, is facing Silicon
Valley-like trouble despite strenuous efforts to recast
the island republic’s industry. Large blue chip
companies like Chartered Semiconductors and contract
manufacturers like Flextronics saw losses increase in
the last financial quarter.
Singapore has always
favored multinational investment to provide jobs.
However, multinationals like Seagate Technologies,
Hewlett Packard and Apple Computer have also been
aggressively cutting back their manufacturing operations
over the past year and have made a large percentage of
their workforce redundant. Adding salt to wounds, many
of these same multinationals are also keen to hire
foreign talent from India and China and pay them lower
salaries than they pay Singaporeans.
The
government is experimenting with testing and breeding
new technologies to seek a competitive edge over other
countries. Three years ago, Singapore introduced an
initiative called the "Enterprise Challenge", a $11.5
million funding scheme to provide for test-bedding
out-of-the-box innovations in the delivery of public
services.
So far it has disbursed $9.2 million
for 47 projects that the government says have created an
actual value of $368 million. Its intention is to create
offspring technologies with shorter time-to-market.
Stung by the economic situation, the government is
taking a softer approach to creating innovative
solutions that may create more opportunities for
employment for its workforce.
India faces no
such problems, If early results for the second quarter
of 2003 are any guide, the software industry is handily
pulling out of the trough. Most of the quarterly results
of top companies like Cognizant, Infosys, Hughes
Software Services, Mphasis BFL and HCL Infosystems not
only indicate a sharp reversal of fortunes, "but also
the fact that Indian software industry seems to have hit
the freeway once again, since most of these companies
have started revising their future guidance upwards,"
said Sunil Mehta, vice president of the industry lobby
the National Association of Software and Service
Companies (Nasscom).
Nasscom is thinking of
revising upwards revenue and export projections if
current trends continue into the next quarter. The most
stunning announcement comes from Cognizant Technology
solutions, the Nasdaq-listed, India-based software
vendor that claims to be the only leading IT offshore
outsourcing provider focusing exclusively on business
applications for the Fortune 500 and blue chip
companies. In 2003 Cognizant upped its revenue guidance
for the year five times - each time by hefty amounts.
Cognizant first predicted revenues of $229
million. That climbed to between $300 million and $305
million, then to $330 million, $354 million and finally
to $365 million.
"Not just that, we have hired
over 2,000 software professionals to ramp up our head
count from 6,500 to 8,500 in just 12 months," says
Debpriyo Dasgupta. a senior manager at Cognizant.
Infosys, he says, added almost an equal number - 2,025
employees - but on an employee base more than twice that
of Cognizant’s. The company believes that revenue growth
will climb by 60 percent over the previous year for
2003. That means it’s about to post the highest revenue
growth amongst India's top five software services
players.
Nor is Cognizant an isolated case.
After two years of cost-cutting and living with trimmed
margins, other leading Indian software vendors appear to
be on the same roll. Satyam Computers, for instance, saw
over 9 percent revenue growth over the first quarter in
the same fiscal year, which in US dollar terms was the
best quarter in the last 10, exceeding analyst estimates
by a considerable margin.
And for Infosys, whose
second quarter revenues at $250.77 million soared by 38
percent over the same period in the previous year, "the
promise of future growth in revenues and pricing
stability has given us the confidence to increase our
guidance for the fiscal 2003-04," said Nandan M
Nilekani, chief executive officer, president and
managing director of Infosys. The company now expects
that its consolidated net revenues would be between
$1,008 million and $1,015 million and consolidated
earnings per American Depository Shares to be $1.95, for
the fiscal year ending March 31, 2004.
"The
reasons for such stupendous growth are clear," says
Lakshmi Narayanan, Cognizant's president and chief
operating officer. "The IT industry is transitioning
from the early stages of a global mega trend in offshore
outsourcing to a mainstream mode where offshore
outsourcing is seen as the highest priority by Fortune
500 and blue chip companies in the US and Europe."
Every Indian chief executive says two clear
trends are emerging. Companies that have experienced
offshore outsourcing are moving complex work offshore
much more, and those that haven't tasted offshoring are
taking to it vigorously.
"The companies are
seeing an improvement in business. The US companies are
realizing the importance of outsourcing. We are seeing
Indian companies managing cost and execution more
effectively. Besides, they have learnt to work in the
tough business environment," says Sunil Mehta of
Nasscom.
But the biggest relief for the Indian
companies has been that the huge pressure of billing
rates has eased considerably. "Billing rates continue to
move in a narrow range for like-on-like services
(excluding the impact of the service mix)," said
Nilekeni. "The pressure of the appreciating rupee is
offset to an extent by improving operational
efficiencies like utilization and increasing the
offshore content as well as financial efficiencies."
But then, the going is still not easy just yet
for many smaller vendors. According to consultant Frost
& Sullivan estimates, 30 percent of the total 900
software companies in India will find it tough to
survive because increasing costs (primarily as a result
of higher salaries) and appreciation of the rupee
against the dollar are still major impediments for
future growth.
Which is why, many companies are
still being extremely careful about costs. Satyam, for
example, has adopted a strategy, which ensures positive
momentum on prices as compared to previous quarters. "We
are looking at cost rationalization, improved
productivity of fixed bid projects and increasing the
offshore component of our business as a way to manage
margins," the company spokesperson said.
James Cheng in Taipei, Tony
Sitathan in Singapore and John Berthelsen in
the US contributed to this report.
(Copyright 2003 Asia Times Online Co, Ltd.
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Nov 13, 2003
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