Now in profits

by Vault Consulting Editors | January 21, 2010

  • My Vault

January marks not only the end of late-night cookie habits, but also the close of many companies' fiscal quarters. Those numbers are being watched especially closely this year, as people look for intimations of what's to come. Whether we can deduce big-picture trends from these numbers is hard to say, but for what it's worth, here are some of the more noteworthy profit reports from the past couple weeks:

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  • IBM reported an 8.7 percent rise in fourth-quarter profit to $4.81 billion, while revenue grew by just 0.8 percent, coming in at $27.2 billion. But, sales of business services (including consulting) were down 2.8 percent, to $4.58 billion. Speaking about company’s consulting business, Andy Miedler from Edward Jones & Co. said, “This is going to be an area that takes time to rebound a bit. The consulting is the more discretionary part of the business.” Still, the company expects higher revenue for 2010; as Mark Loughride, IBM senior vice president and CFO explained, "There were a number of large deals that did not close during the fourth quarter and have contributed to a very strong first quarter opening pipeline."
  • Tata Consultancy Services stole the show, posting a 33 percent jump in Q3 profit—the third consecutive quarter of growth for Indian giant. The firm reported its largest growth in the banking, financial services and insurance segment, boosted by recovery efforts, followed closely by telecom and technology, and also energy and utilities. Moreover, the company was able to add over 12,000 new employees in Q3, with a utilization rate of over 80 percent.
  • Fellow outsourcer Infosys has also shown positive signs of life, having recently reported Q3 growth, in the range of 7 percent over last year. And, similar to TCS, its growth was led by the US financial services sector. As a sign of its confidence in economic recovery, Infosys raised its annual sales forecast based on increased engagements with financial services clients. "Global economic recovery seems to be led by the US and the Financial Services," said S. Gopalakrishnan, Infosys CEO and Managing Director. “Even though IT budgets are expected to be flat in 2010, offshore outsourcing is expected to benefit from this recovery.”
  • While some firms (ie, Accenture, SAP) have reported mixed quarterly earnings, in general, things seem to be looking up for IT consulting firms—especially as recovery continues in the financial services space, and companies continue to look for ways to improve their infrastructure and system integration, and cut costs.

So if you're into reading signs, it looks like 2010 is off to a promising start (especially considering the low point from which we're starting). Look for most of the jump in the financial services area, followed by energy and utilities, and telecom. But be sure to temper your expectations realistically: Companies are still very cautious about spending, which will inevitably put huge pressure on fee rates in 2010, and the increased playing time of Indian outsources only puts further pressure on fees.

Filed Under: Consulting

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