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Wipro IT chiefs quit after profit setback

Bangalore, January 22, 2011

India's Wipro overhauled the management of its key outsourcing business after reporting third-quarter profit growth that lagged its main rivals, sending its shares down the most in a year.

India's No 3 software services exporter has been struggling to win big contracts as the sector recovers from the global downturn, and its shares and margins have suffered compared with its larger competitors, Tata Consultancy (TCS) and Infosys, said a report in our sister publication, the Gulf Daily News.

Wipro said co-chief executive officers of the IT unit, Girish Paranjpe and Suresh Vaswani, would resign effective January 31 and be replaced by company veteran T K Kurien to make the organisation structure simpler.

The unit, which develops software applications, integrates IT systems and manages call centres for clients such as Citi, Cisco and Credit Suisse, accounts for about three-quarters of Wipro's revenue.

Wipro said fiscal third-quarter net profit rose 10 per cent to 13.19 billion Indian rupees ($290 million) under international accounting standards from 12.03 billion a year ago, matching forecasts.

Still, the results lagged TCS and Infosys. Last week, TCS beat profit estimates with a 30 per cent growth. Infosys reported a 14 per cent rise in the third quarter.

Wipro, which also makes computer hardware, consumer care products and electric bulbs, posted revenue of 78.3 billion rupees ($1.7 billion) in the quarter, compared to analysts' estimates of 80.1 billion rupees.

The firm added 36 new clients, its biggest client addition in five quarters. It added 3,591 net staff in the third quarter.

"I don't think we should be making excuses," chairman Azim Premji said. "We have underperformed in quarter three, relative to competition and relative to our potential as a company. Let's just acknowledge that. What we are trying to do is improve performance in quarter four and significantly improve performance going forward."

"This is definitely a surprise," said R K Gupta, managing director of Taurus Mutual Fund, which owns Wipro shares. "For Wipro, resignations by such key people could lead to losing out on some orders as the contacts move away with the employees."

Wipro has lagged in share price performance and profits in recent months, while its 2010 operating margin of 21 per cent was lower than Infosys' 31.6 per cent and Tata Consultancy's 24 per cent, according to data from Starmine.

Wipro forecast IT services revenue of $1.38 billion to $1.41 billion for the fiscal fourth quarter, up 3-5 per cent from the quarter ended in December.

Chief financial officer of Wipro's IT business Manish Dugar said the company, which is also listed in New York, was seeing increased demand from clients in the US and Europe - its two biggest sales markets.

"While there is the discussion on double dip, sovereign fiscal situation in Europe, it has not impacted the private sector...the view is that budgets will see expansion and will get spent," Dugar said.

Global spending on technology is likely to rise 5.1 per cent to $3.6 trillion in 2011, according to research firm Gartner, higher than its previous estimate as the dollar's recent weakness helped push IT spending beyond its forecast for 2010.

But rising wages and intensifying competition from global firms such as Accenture and Hewlett-Packard are key risks to India's showpiece $60 billion outsourcing industry.

Volatility in global currencies is also a worry to the export-focused sector. – TradeArabia News Service




Tags: profit | Wipro | Tata | Bangalore |

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