SILICONEER | INFOTECH INDIA: Tech News Briefs | DECEMBER 2009

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TCS: Tech Firms Eye $1 Billion Pie on U.S. Recovery

As America’s top banks emerge from the Troubled Asset Relief Program and the economy starts showing signs of recovery, Indian outsourcing vendors Tata Consultancy Services, Infosys and Wipro are set to gain offshoring projects worth around $1 billion over the next one to two years.

JP Morgan, Goldman Sachs and Morgan Stanley, which received approval to buy back government stake worth $68 billion earlier this year, apart from American Express, Bank of New York, Mellon and Capital One — which also started repaying government debt — are among the firms seeking operational efficiencies by outsourcing non-core IT and back-office projects to India. Many of these banks had deferred new offshoring decisions as they attempted to cope with TARP funding and internal restructuring of processes. Experts such as Andy Efstathiou, director of the banking sourcing practice at research and consulting firm NelsonHall, say U.S. banks are increasing offshoring.

“Since the beginning of the economic crisis, many of these contracts have been put on hold. That is beginning to change. It is looking like the Q4 of 2009 is shaping up to be 20 percent-plus over Q4 of 2008,” he told The Economic Times.

In a September survey of around 480 firms by Efstathiou, only 2 percent said they plan to reduce offshoring, while almost 37 percent of the respondents said they will increase offshoring. “The financial services firms we have spoken to intend to increase offshore spending,” he added. Merger among banking systems of Bank of America and Merrill Lynch among many other such transactions, is creating newer opportunities for offshoring and outsourcing vendors.

Since offshoring will help merged banks save costs by 30-40 percent, these merged banking entities are seeking to partner with a vendor having significant offshore presence.

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IBM Eyes Raipur, Bhopal for Expansion

IT solutions provider IBM is planning to expand its footprints in tier II and tier III cities with a bouquet of hardware, software and services offerings primarily targeted at mid-market clients.

IBM Growth markets vice president Harish Krishnamurthy told The Economic Times that the company is soon going to set up its hubs in potential cities like Raipur, Bhopal, Bhubhaneshwar, Vizag and Nagpur. “These cities have great untapped potential. By starting our hub in these cities we would be able to cater to the requirements of surrounding tier III cities through our partners under hub and spoke model. The small and medium enterprises offer great business opportunities,” he said.

At present, IBM has a direct presence in 22 cities across the country. The company has also appointed IT players Sequel Infocom and Icon Integrated services as the channel partners to sell IBM’s infrastructure services to clients. “These two partners will focus primarily on the Rajasthan market. They will help us in enhancing our reach in the state by offering infrastructure services to clients helping them in areas of Green IT, security, business continuity, improved collaboration and communication among others,” he said.

IBM has also launched first of its kind service offering named IBM Express Remote managed Infrastructure Services exclusively to be sold by its channel partners. “IBM cannot sell it directly to the clients. It has to be sold through our channel partners. It is designed to enable IBM business partners in providing their clients with remote monitoring, management and service reporting of their IT infrastructure,” said Vivek Malhotra, IBM vice president.

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INFOSYS: Focus on Aerospace

India’s second-biggest software exporter Infosys Technologies plans to stay away from top auto customers in its engineering services business and shift its focus from commoditized and price-sensitive projects.

Engineering requires a mix of programming and core engineering skills such as mechanical or civil, depending on the industry being serviced, and is billed at higher rates than traditional application development and maintenance projects.

“We have chosen to walk away from this (auto) industry because the work has become increasingly commoditized because of high competition. We are a premium services player and our contribution is value-driven,” said Valmeeka Nathan, Infosys vice-president and head of product lifecycle and engineering. He said the company had chosen to de-risk revenues from this segment and instead focus on segments such as aerospace, which provides stability and visibility of revenues.

Some of the other focus areas for the company in engineering services will be sectors such as heavy engineering, hi-tech, energy generation, medical and apparel. Nathan said aerospace contributed about 40 percent to the company’s engineering services revenues, with the remaining 60 percent coming from other sectors. “The contribution of the auto (sector) to our (engineering) revenues is minor. We do take on projects from auto clients, but selectively,” he added.

“The nature of engineering services is different from software services, and requires a fairly different talent pool. Vendors have their own niche because it requires a fair amount of competency. It also doesn’t offer the same kind of scalability as the rest of the software business,” said Sandeep Muthangi, an analyst with IIFL. “Even outside of engineering services, Infosys does not have much exposure to the auto sector,” said an analyst with a foreign brokerage.

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HCL: Center in Brazil

HCL Technologies said it has opened a global IT development center in Sao Leopoldo, Brazil, to cater to clients across Latin America, North America and Europe.

The center, which complements HCL's operations in Sao Paulo, is expected to hire over 300 engineers by 2012, HCL Technologies said in a statement.

The center will offer a range of services, including enterprise application services, custom applications development and maintenance, and remote infrastructure management to clients primarily in Latin America, North America and Europe, the statement said.

Brazil accounts for more than 40 percent of the overall IT spending in Latin America. According to global market research and analytics company IDC, spending in IT services activities in Latin America will be more than $20 billion in 2009 and will grow to more than $25 billion in 2012.

"Brazil offers the perfect balance of cost savings and talent base that allows HCL to serve clients not only in this fast-growing region, but also in the U.S. and Europe," HCL America president Shami Khorana said.

HCL's operation in Brazil is the first in a series of locations the company will establish in Latin America, he added.

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JUNIPER NETWORKS: $400M Investment

Leading IT and computer networking firm Juniper Networks said that it was viewing India as a strategic market with focus on BFSI, governments and telecom sector and plans to invest $400 million in total operations, including research and development, in the next five years.

"India is a strategic market for us. BFSI, government and telecom sectors are our vital markets,” said Sanjay Jotshi, director of enterprise and channels, India and SAARC.

"Juniper plans to invest $400 million in India in total operations, including sales and R&D in the next five years,” he said.

"As we see revenue growth, we will thoughtfully begin investing more in areas that will continue to drive growth for the company,” he said.

Jotshi said that the company has invested $200 million to date in its Bangalore R&D facility. This includes infrastructure, equipment for labs and salaries, he said.

"The India engineering center is a crucial part of Juniper success story. Any products shipped by Juniper has some contribution from R&D center in Bangalore. Twenty five percent of Juniper's engineers are based out of the Bangalore R&D facility,” he said.

Nearly 40 percent of development of EX enterprise switching portfolio came from the Bangalore's R&D center.

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SATYAM: Rs. 140 Trillion Loss

Investors of erstwhile Satyam Computers, formerly headed by B. Ramalinga Raju, have made losses to the tune of Rs. 140 trillion, double of what the scam was estimated to be earlier, according to V.V. Lakshminarayana, DIG-CBI.

With no headway into the aspect of diversion of funds in the Satyam scam, the apex investigating agency filed a second charge sheet, thereby drawing curtains on the probe into the accounting aspect of the scam.

“We will also soon file an additional charge sheet, pertaining to diversion of funds and the fraud perpetrated by the accused with regard to filing of I-T returns,” he said. The 200-page supplementary charge sheet which brings evidence against the 10 accused in the scam, has included charges like criminal breach of trust, among others, in the first charge sheet.

The CBI had earlier in April this year filed the first charge sheet. According to the CBI, the accused had forged board resolutions to obtain unauthorized loans or advances to the tune of Rs 12.2 billion, which is over and above the understated liability of Rs 12.3 billion that Ramalinga Raju had mentioned in his confession letter earlier.

Ramalinga Raju had made wrongful gains to the tune of Rs 19.3 billion by pledging shares and around Rs 7.5 billion by offloading shares of the company, said Lakshminarayana.

The accused have also created fake customers and generated false invoices to inflate revenues to the tune of Rs 430 crore.

Also, the three main accused — the Raju brothers and former CFO Srinivas Vadlamani — have resorted to criminal breach of trust and falsified the accounts with respect to acquiring Nipuna Services, the BPO arm, amounting to Rs 1.8 billion.

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China Eyes Indian Outsourcing

As top Chinese enterprises such as Bank of China and China Telecom seek to globalize their operations, they are increasingly turning to multinational and Indian outsourcing firms, including IBM and TCS, for deploying and maintaining standard software solutions, giving them an edge over local service providers.

In many ways, Chinese customers’ shift towards global and Indian vendors is reminiscent of how top Indian customers such as Bharti Airtel preferred IBM over domestic suppliers around two decades ago for modernizing their IT and business systems.

While state-owned and local Chinese software services suppliers, such as Digital China Holdings and Neusoft, continue to work with the country’s large customers, IBM along with TCS and others are being preferred for large, complex outsourcing contracts by customers such as China Telecom and Bank of China.

“A fragmented local vendor landscape and a domestic market dominated by wholly foreign-owned enterprise customers means that it will be the major western and Indian outsourcing vendors that will reap the rewards,” said Patrick O’Brien, senior analyst at the U.K.-based research firm Ovum. “Apart from scale, local service providers also lack experience in handling large outsourcing contracts, something global and Indian firms are really good at,” he added.

While IBM earned nearly $690 million from China’s almost $10-billion IT services market last year, both TCS and Wipro have started making progress as well. TCS on its part, has recently won several large contracts beating local Chinese rivals, including over $100-million deal for implementing a core banking software at Bank of China.

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Big U.S. Deal

Six Indian companies, including Tata Communications, Infosys Technologies and Apollo Hospitals, have signed separate collaboration agreements with U.S.-based firms for joint business development at Washington.

The agreement signing ceremony, organized by industry body CII, coincides with the state visit of Prime Minister Manmohan Singh to the U.S.

Data services provider Tata Communications has inked a Memorandum of Understanding with Tyco Electronics to work together in providing additional connectivity and transmission, using dark fibers on the submarine cable system.

Indian IT major Infosys Technologies has signed a multi-year enterprise agreement with Microsoft, to work together in areas like databases, besides infrastructure and application software.

Apollo Hospitals has signed an MoU with stem cell therapeutics company StemCyte to establish a cord blood bank facility at its Ahmedabad-based hospital.

Drugmaker Cadila has joined hands with biotech firm Novavax to support production of key vaccines in India, including the recently-developed H1N1 Pandemic Vaccine. Jubilant Organosys also entered into a joint venture with two U.S. institutes — University of Alabama and Southern Research Institute.

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COVER STORY
Toxic Legacy:
Bhopal Disaster
A 1984 industrial disaster has killed over 20,000 people in Bhopal. Activists are determined not to allow the plight of victims to be brushed aside. A report by Anu Mandavilli.

SYMPOSIUM
Bangladesh:
Hopes and Challenges
In a symposium headlined by Bangladesh’s UN envoy, Berkeley academics highlighted challenges of contemporary Bangladesh. A Siliconeer report.

COMMUNITY
Trucking to School:
DIL Gala 2009
The SF chapter of DIL, which teaches close to 16,000 students in Pakistan, held a fundraiser, writes Ras H. Siddiqui.

OTHER STORIES
EDITORIAL: Bhopal, 25 Years
NEWS DIARY: November
U.S.-INDIA TIES: Manmohan Singh in U.S.
SUBCONTINENT: The Maoist Challenge
RECIPE: Navratan Korma
REAL ESTATE: Short Sales: Myths, Reality
SUBCONTINENT: Battling Corruption
TRAVEL: Ski Apache, New Mexico
AUTO REVIEW: 2010 Toyota Prius
BOLLYWOOD: Film Review: Tum Mile
BOLLYWOOD: Guftugu
TAMIL FILM: Pazhasiraaja
EVENT: India Rising: AIF Gala
COMMUNITY: News Briefs
INFOTECH INDIA: Briefs
HOROSCOPE: December

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