BANGALORE: TCS and Cognizant are rapidly pulling ahead of Infosys and Wipro, indicating a new polarization in the IT sector.
Cognizant's performance has been the most remarkable in the past decade. Comparable calendar year data shows that in 2004, it had revenue of $0.59 billion, 40.7% of Infosys's revenue of $1.44 billion. By 2013, the company's revenue had touched $8.84 billion, or 109% of Infosys' revenue of $8.1 billion. Its annual revenue is now close to $1 billion more than Infosys's. Against Wipro, it's an even sharper rise.
TCS's revenue in 2005 was $2.61 billion, or 130% of Infosys' revenue of $2.01 billion. Now, in 2013, at $12.98 billion, it's 160% of Infosys's revenue. Against Wipro, the corresponding figures are 167% and 200%; in other words, TCS is twice the size of Wipro now. Clearly, it's in a league of its own. Among the top four, only Cognizant has steadily narrowed the gap with TCS. It was 28% of TCS' size in 2004; last year it was close to 70% the size.
Peter Bendor-Samuel, founder of IT advisory firm Everest Group, believes there is a separation happening on more than one dimension that has differentiated the two sets of IT players. "I think the market reputation of TCS and Cognizant are perceived differently. They have become far more relevant to their customers and hence they have been rewarded with huge growth. They have started to compete with Accenture and IBM with big transformational deals. So they have earned their way into a new class of opportunities," he said.In a recent interview with TOI, Cognizant president Gordon Coburn said, "We believe there are two very legitimate models in the industry - one focused on maximizing margins and the other focused on maximizing revenue growth/market share. We adopted the model of maximizing revenue growth/market share."
That's partly true. Cognizant's operating margin has always been lower; in the last quarter it was 19%, significantly below Infosys's 25%, and Wipro's 23%. But then TCS has been an exception; it has combined high operating margins - in the last quarter it was as much as 30% - and high growth, which, however, has been slower than Cognizant's.
Ray Wang, CEO of technology research firm Constellation Research, said, "The bigger shift would happen depending on which of these services firms deliver products and IP. Scalable revenue is no time and material revenue. When services firms build successful IP-based businesses, the differences will become greater."
Everest's Samuel said Infosys 3.0 strategy that focused on products and platforms was mistimed. "They went with this whole platform play when customers weren't buying. Now they have moved back to the basics, a strategy focusing on application development and maintenance that customers would buy from them," he said. Wipro, he said, was late into verticalization and they underwent large-scale restructuring. "Consequently, the change they drove was abrupt and they had a lot of exits," he said.
Siddharth Pai, president in outsourcing advisory firm ISG's Asia Pacific region, said each company was an individual entity, following different strategies and outcomes. "While some of them are in the growth cycle, others are in the investment cycle," he said. He did not name companies, but indicated that those in the investment cycle (presumably Infosys and Wipro) may see higher growth rates in future as the investments bear fruit.
Cognizant's performance has been the most remarkable in the past decade. Comparable calendar year data shows that in 2004, it had revenue of $0.59 billion, 40.7% of Infosys's revenue of $1.44 billion. By 2013, the company's revenue had touched $8.84 billion, or 109% of Infosys' revenue of $8.1 billion. Its annual revenue is now close to $1 billion more than Infosys's. Against Wipro, it's an even sharper rise.
TCS's revenue in 2005 was $2.61 billion, or 130% of Infosys' revenue of $2.01 billion. Now, in 2013, at $12.98 billion, it's 160% of Infosys's revenue. Against Wipro, the corresponding figures are 167% and 200%; in other words, TCS is twice the size of Wipro now. Clearly, it's in a league of its own. Among the top four, only Cognizant has steadily narrowed the gap with TCS. It was 28% of TCS' size in 2004; last year it was close to 70% the size.
Peter Bendor-Samuel, founder of IT advisory firm Everest Group, believes there is a separation happening on more than one dimension that has differentiated the two sets of IT players. "I think the market reputation of TCS and Cognizant are perceived differently. They have become far more relevant to their customers and hence they have been rewarded with huge growth. They have started to compete with Accenture and IBM with big transformational deals. So they have earned their way into a new class of opportunities," he said.In a recent interview with TOI, Cognizant president Gordon Coburn said, "We believe there are two very legitimate models in the industry - one focused on maximizing margins and the other focused on maximizing revenue growth/market share. We adopted the model of maximizing revenue growth/market share."
That's partly true. Cognizant's operating margin has always been lower; in the last quarter it was 19%, significantly below Infosys's 25%, and Wipro's 23%. But then TCS has been an exception; it has combined high operating margins - in the last quarter it was as much as 30% - and high growth, which, however, has been slower than Cognizant's.
Ray Wang, CEO of technology research firm Constellation Research, said, "The bigger shift would happen depending on which of these services firms deliver products and IP. Scalable revenue is no time and material revenue. When services firms build successful IP-based businesses, the differences will become greater."
Everest's Samuel said Infosys 3.0 strategy that focused on products and platforms was mistimed. "They went with this whole platform play when customers weren't buying. Now they have moved back to the basics, a strategy focusing on application development and maintenance that customers would buy from them," he said. Wipro, he said, was late into verticalization and they underwent large-scale restructuring. "Consequently, the change they drove was abrupt and they had a lot of exits," he said.
Siddharth Pai, president in outsourcing advisory firm ISG's Asia Pacific region, said each company was an individual entity, following different strategies and outcomes. "While some of them are in the growth cycle, others are in the investment cycle," he said. He did not name companies, but indicated that those in the investment cycle (presumably Infosys and Wipro) may see higher growth rates in future as the investments bear fruit.
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