Yesterday Cognizant announced their results for the quarter and the year. That rounded up the quarter for the major Indian IT services companies.
I pulled some data together for the past five quarters. The results were pretty interesting.
First, I wanted to see what was happening to growth. I built an indexed chart which just shows growth for each company over its revenue in QE Dec-09.
Revenues for the previous quarter are in the same ballpark – between HCL’s $800 M and TCS’s $2 B a quarter. In that range, the size of the base should not impact growth much. Also, there were no major acquisitions during this period.
Cognizant is clearly pulling ahead of the pack. Wipro is falling behind a bit. HCL has upped its game and is keeping pace with Infosys and TCS.
What can we expect in the future? It’s hard to say. I think Cognizant will continue to lead the growth tables in the near term. The rest is anyone’s guess.
The long-term is a different matter. IT Services companies have a lot of inertia. These companies are like rolling, massive boulders. Changing speed or direction takes a lot of effort. And time. The companies that want to take the lead two years from now, better start making changes now. Managing results quarter to quarter, isn’t going to hack it.
The other interesting thing is the spread in margins in the industry.
The margins range from 10% for HCL to 25% for Infosys. (Wipro does not report net margins for its IT Business separately.) It is uncommon in an industry to have four similar sized companies in the lead with such a wide range of margins. Especially, in an industry where there are no entry barriers of technology.
My take is that this range of margins will narrow in the long term. Since Cognizant is now the growth leader, it can afford to stay put. But Infosys, TCS and Wipro will find it difficult to stay where they are.
If they execute well, these companies will be able to gradually up their spend on the things that matter and protect pricing. If they don’t, their pricing power will erode.
Protecting price levels is all about reducing competition. Superb account management and client service can do that. Investing in solutions that create measurable value for clients can do that. And new services and IP can do that.
Yes, a strong brand will also help, but the leverage from better marketing today, with five major players in the market, is not what it used to be. Good marketing is now table stakes.
On a related note, fellow EI, Ray Wang, who is just back from a NASSCOM conference, has a great post on how Indian services companies can start leading.