WIPRO TECHNOLOGIES: Bottomline Blues

Chairman & MD Azim Premji Startup-Year 1981 Products & Services Tech products, IT services, SW solutions, e-procurement services Employees 15,598 Branches 70 Address Doddakannelli, Sarjapur Road, Bangalore Tel 8440011 Fax 8440350 Website www.wipro.co.in

Azim Premji Chairman, Wipro Ltd Vivek Paul Vice-chairman Wipro, and CEO, Wipro Technologies Suresh Vaswani President, Wipro Infotech Raman Roy Chairman, Wipro Spectramind

Wipro Tech profitability drops from 12% to 5% Wipro Infotech recovers, but share declines Wipro Tech makes three key acquisitions BPO (Spectramind) makes a splash Increases headcount 35% Premji among Fortune’s 25 most powerful global businessmen

Management willingness and ability to realign Wipro Tech towards a more consultant-led approach. Long term pay-off Growing solutions and services revenues at Wipro Infotech will come to its rescue

Lack of focus on domestic market may come to haunt the company in the next few years Moving away from R&D export services means more dependence on body count and thinner margins

It’s in the perspective. Looked at one way, fiscal ’03 was a good year
for Wipro–its IT business grew 29%, compared to 8% the year before. Looked at
another, it was a horrible year–gross profits grew a mere 5%, compared to 12%
the year before. Operating margins were down yet again, from 27% to 22%.

"We showed a lot of flexibility last year," Wipro vice-chairman
Vivek Paul said at the year-end results conference in April. That meant, among
other things, that Wipro Technologies–the company’s global IT services
division–let go if its R&D services revenues, which fell from 50% to 39%.
This is the high-end, high-value business that the company, two years ago, had
said would grow to 60% of total revenues.

At Wipro Tech, growth came from the enterprise solutions division. Financial
services continued to grow, though that vertical is now beginning to slow down.
Telecom, however, picked up through three straight quarters after a reasonably
dismal FY ’02. And as at other IT services companies, US revenues went up here
too, from 57% to 63%. Wipro is among the few top exporters that still gets a
good 30% of its topline from the European market. Adding bottomline pressure,
though, were higher onsite revenues and the impact of rupee depreciation, which
is only expected to exacerbate this year.

At Wipro Infotech–the domestic, APAC and ME division–revenues were up
16%. Most segments saw growth–system sales were up 11% compared to a 24% fall
last year, while the Sun server business grew 58%. Though the PC business fell
overall because of Voyager being discontinued, Wipro SuperGenius sales grew 11%
in value terms. Networking, peripherals and services were all up, though they
remained below FY ’01 levels. Interestingly, while facilities management
continued to grow at 33%, maintenance revenues went down for a third year in a
row.

In many ways, it was a year of churn at Wipro. Even as Wipro Tech struggled
with billing pressure, it went into investment overdrive with three key
acquisitions, including Spectramind. Wipro Infotech has, however, increasingly
looked like a stepchild over the years. Despite growth last fiscal, its share of
the pie was down again, by three percentage points.