Indian IT Giants may Suffer as Auto Sector Sinks

by UTVi Desk    Dec 12, 2008

With the US senate failing to clear a bailout package for the country’s automobile industry, overall expenditure on IT by the three US auto giants - GM, Ford, and Chrysler - is expected to fall by $1.5 billion. US auto companies would cut their discretionary spend to stay afloat. If this happens, it is bad news for IT since about a third of their IT spends are of discretionary nature.

Any problems in the automobile sector could have repercussions for Indian IT/ITeS firms as nearly 3-4% revenue of the Indian IT companies flow from the global auto sector. To take things into perspective, IT budgets of the 3 US auto companies are as small as 1-2% of their total revenue in absolute terms. GM ended 2007 with $181 billion in revenue. Ford and Chrysler reported sales of $172 billion and $58.6 billion. The magnitude of the impact would be known in 2-3 months, once auto players have a review of their IT budgets.

Key global clients of Indian IT firms

TCS: Chrysler

Wipro: GM

Satyam: GM, Ford

Impact on Indian IT firms

Satyam, TCS, and Wipro could be hit by delayed payments. In Feb 2008, TCS signed a contract with Chrysler worth $120 million. The contract was for application maintenance and support. TCS’s auto exposure accounted 15.1% of its $4.3 billion global revenue in FY07. KPIT Cummins Infosystems earns over 35% of its revenue from auto verticals

Wipro has bagged a slice of the $15 billion IT outsourcing of GM. Wipro is estimated to earn revenues in excess of $300 million over the next five years from the deal. Satyam has bagged a $150-million (Rs 650 crore) five-year deal from GM in 2006 and is expected to get $150 million in next five years

12% of Satyam’s revenue in FY ‘07 came from the automotive sector. Satyam works with eight of the top 10 global automotive companies.

Related links:
IT: Driving the Automotive Sector