Unlike its peers TCS and Infosys, India's third-largest software firm Wipro on Friday reported a lower net profit for the second quarter and projected flat revenue from its IT services for the third quarter of this fiscal (2016-17) due to weak demand and uncertainty in technology spending.
But interestingly, Wipro has a unique investment plan to pull itself out of the slow growth cycle. While most Indian IT giants have preferred sitting over huge pile of cash that earns poor returns, Wipro has employed its revenue in acquiring firms in an attempt to generate better returns and accelerate towards emerging sectors such as cloud computing and digital services.
It was a part of this strategy, usually referred to as Wipro’s ‘string of pearls’, that the company acquired Appirio for $500 million. A US-based cloud service firm, Appirio has annual revenue of less than $200 million. Though Appirio will prove to be earning dilutive in the short-run, analysts are convinced that the acquisition will help Wipro diversify revenue and will provide it with the opportunity to dwell into the cloud-integration business.
Appirio brings to Wipro widely used platforms such as Salseforce.com, Workday and Topcoder - all leading products in their fields of service. The acquisition of Appirio has provided Wipro access to clients such as Stryker, Robert Half, Johnson Controls, Cardinal Health, Coca-Cola, eBay, Facebook, Home Depot and Sony PlayStation.
“The acquisition leapfrogs Wipro in Salesforce and Workday implementation over other Indian IT (firms) and places it among the top-five players globally along with IBM, Accenture and Deloitte," analysts at Kotak Institutional Equities said in their report. They also stated that acquisition of Appirio will improve Wipro’s ability to take this capability to its existing large clients; tweak its digital positioning and also open up opportunities for integrated deals as opposed to simple reliance on implementation revenue.
As India’s core IT sector is growing sluggishly, this aggressive mergers and acquisitions strategy employed by Wipro will help it compete with its larger rivals in the Indian market, while it diversifies its sources of revenue and ventures into new fields through its string of pearls in the international arena.
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