After competing in the business process outsourcing segment for around a year, Wipro Technologies has said that it has experienced pricing negotiations with some clients.

The company attributes this to a decline in gross profits in global IT services and products from 43 per cent in the six months ended September 30, 2002, to 37 per cent in the six months ended September 30, 2003.

Feeling the pinch

Wipro is responding to the pricing pressures by focusing on services with higher price margins, managing cost structure, aligning resources to expected demand and raising the utilisation of IT professionals. Its IT services and products business segments in India and Asia-Pacific have also experienced pricing pressure. The company says it expects the pressures to continue in the foreseeable future

This comes after a recent reorganisation, which saw the consolidation of its previous IT-enabled services business segment, which provides BPO services to customers, into the global IT services and products business segment.

According to a recent filing to the US Securities Exchange Commission, the company has said, "We continue to experience pricing pressure in our core service offerings because of the clients' needs to reduce their costs and the increased competitive environment among IT companies.

"In addition, some of our newer service offerings, such as consulting and package implementation, require a higher proportion of services to be performed at the clients' premises.

"Further, we are experiencing an increase in wages for our IT professionals. We expect these trends to continue for the foreseeable future."

The company has stated that in response to the continued pricing pressure and the increased competition from other IT services companies, it is constantly focusing on services with higher price margins, managing cost structure, aligning its resources to expected demand and increasing the utilisation of its IT professionals.

The company has said that its India and Asia-Pacific IT services and products business segments have also experienced pricing pressures because of clients' needs to reduce costs.

As a result, gross profits in the services component of this business segment declined from 48 per cent in the six months ended September 30, 2002, to 47 per cent in the six months ended September 30, 2003.

Although gross profits in the products component of this business segment have increased from 11 per cent in the six months ended September 30, 2002, to 12 per cent in the six months ended September 30, 2003, Wipro has said that it expects the pricing pressures to continue in the foreseeable future.

Wipro's product revenue is driven by capital expenditure budgets and the spending patterns of its clients, who mostly delay or accelerate purchases in reaction to tax depreciation benefits on capital equipment.

As a result, its India and Asia-Pacific IT services and products revenue for the quarters ended March 31 and September 30 are higher than other quarters of the year.

"We believe the impact of this fluctuation on our revenue will decrease as the proportion of services revenue increases," the company has said.