Australian telecom major Telstra has asked Infosys Technologies, Satyam Computer, IBM and EDS to retender for its nondiscretionary IT work. The value of this deal is not known, but analyst guesstimates are this could be around USD100 million or more. The vendor consolidation is part of the telecom behemoths costcutting initiatives, which will involve slashing the number of IT vendors from four to two.
So, what does the Telstra move mean for the Indian IT firms, which are already reeling under the impact of the economic slowdown in the western economies.
Infosys chief financial officer CFO Balakrishnan says such consolidation always works in favour of offshore players.
Customers undertake such vendor consolidation exercise even in good times to improve cost efficiency. In most instances, it is the offshore players who are the winners because of the cost advantage that they have over the other players, said Balakrishnan.
Diviya Nagarajan, analyst with JM Financial Institutional Securities, feels Indian companies stand a better chance compared with IBM and EDS.
We believe that Infosys and Satyam have a good chance of winning the consolidation exercise given the recent example of Telstras classifieds subsidiary Sensis, Nagarajan said in a report.
Natarajan was referring to the recent instance, where Sensis went in for a vendor rationalisation exercise wherein it dropped IBM and EDS from its software testing and application development panel, and retained Satyam, Infosys, and Australia based Revolution IT.
Both the Indian tech companies have a significant part of the Telstra deal.
The Australian telecom company is the secondlargest telecom client for Infosys, while Satyam has significant presence in Telstras software testing.
But Nagarajan feels that it would be tough fight for two.
IBM will be a tough competitor Telstra signed a sixyear outsourcing deal reported at over Australian USD1 billion with IBM in 2006. To that extent, we expect Infosys to have an edge over Satyam given its larger presence within Telstra, Nagarajan said in her report.
She also expects more instances of vendor consolidation over the coming quarters.
That, she says, could impact nearterm revenue of local vendors but would work in favour of them over the medium to long term.
Nasscom chairman Ganesh Natarajan says such consolidation usually benefit offshore vendors as they get more business.
When the same business gets split between fewer vendors, it means 40 to 50 percent more business for those who are selected, Natarajan said.