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Friday, Oct 06, 2006

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Info-Tech - Diversification
Cos look beyond core, enter new verticals

Archana Venkat

See good revenues in the long term

Big prospects
HCL has entered the transportation and logistics and life sciences areas.
TCS' new areas of focus are Hi-Tech and Computer Services.
Satyam Computer focuses on energy and utilities vertical besides transportation.

Chennai , Oct. 5

Information Technology companies are looking at new areas of business in addition to their core areas of operation to add to their revenues.

For instance, HCL Technologies Ltd, which focused on research and development for technology companies like Cisco, recently entered the transportation and logistics and life sciences areas, what IT companies call `entering new verticals'.

Satyam Computer Services Ltd, whose strengths are in areas such as automotive and manufacturing verticals, has entered the energy and utilities vertical besides transportation in recent years.

Mr Gaurav Chadha, Head- Business Development, Wipro Infotech, says the company recently entered the ITES/BPO and retail verticals.

Tata Consultancy Services recently entered the Hi-Tech and Computer Services vertical to service companies working in areas of semiconductors, electronics, hardware, network and communication. The company's core focus areas in the past have been banking, financial services and manufacturing.

These new areas of focus are certainly not comparable with the existing areas in terms of revenue generation, but companies feel they hold promise in the long-term.

Cognizant Technology Solutions for instance, started with financial services and healthcare as core sectors. "Today manufacturing and retail verticals make up about 16 per cent of our revenues," says Mr R. Chandrasekaran, President and Managing Director. Healthcare (including pharmaceutical services) today contributes to 22 per cent of revenues.

Growth potential

Though companies did not share future revenue projections from new verticals, data from annual reports indicates potential for growth.

Cognizant's annual report for 2005 shows revenues from manufacturing, retail and logistics growing at over 40 per cent over the last two years — from $6.4 million in 2003 to $10.5 million in 2004 and $15.2 million in 2005. Revenues from healthcare have multiplied over 15 times from $11.6 million in 2004 to $176 million in 2005.

The 2005-06 annual report of TCS indicates that contribution of non-core verticals to total revenues has been increasing while that of core verticals like manufacturing has dipped marginally for fiscal years 2005 and 2006. Revenues from manufacturing services contributed to about 17 per cent of total revenues in 2004-05 but only 15.38 per cent of total revenues in 2005-06.

Over the next two years, companies want to focus on streamlining some of their existing verticals besides forming sub verticals. Cognizant feels demand in the telecom, media and entertainment sector will be more as triple play (convergence of audio, video and Internet) gains prominence.

TCS has formed sub heads such as financial analysis and consumer analytics under its KPO offering and will ramp up heads such as media and entertainment, life sciences and healthcare and retail, said the company's spokesperson.

HCL Technologies recently introduced two micro verticals — capital market services and retail and corporate banking — under the financial services head.

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