Maintenance services now cash cow for IT vendors

By siliconindia   |   Friday, 22 May 2009, 15:47 IST   |    2 Comments
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Maintenance services now cash cow for IT vendors
Bangalore: As the current credit crunch is forcing IT clients to postpone the deployments of new technologies, Indian IT vendors are drawing more revenues from application maintenance services. "Maintenance continues to be hot," said S. D. Shibulal, Chief Operating Officer, Infosys Technologies. "The new systems that clients were going to implement are delayed, which means there is more maintenance to be done," he added. Infosys has a new ticket-based pricing model for its maintenance services, where the customer is billed for the number of upkeep requests or the number of devices managed. Forrester Research has predicted that IT purchases in the U.S., the world's largest IT services market, will slow down from 4.05 percent growth in 2008 to 1.6 per cent in 2009. Despite adding newer service lines such as testing and infrastructure management in the past few years, Indian vendors continue to earn about 40 percent of their revenues from the traditional application, development and maintenance (ADM) services. Maintenance revenues, which typically account for almost half the ADM earnings, lend some stability to these vendors, especially in an economic downturn. Harit Shah, an analyst at Angel Broking said, "Growth in maintenance revenues is typical and not surprising in a slowdown environment as development part of the ADM business will be less." Small and mid-size companies such as MindTree also see a growth in their maintenance revenues. MindTree, which earns 32-33 per cent of its revenues from maintenance, expects it to grow to 40 percent in the next two-three years, said the company CEO, K.K. Natarajan. "Demand for application maintenance and other services focused on cost containment such as IT infrastructure services and business process outsourcing should remain relatively strong as clients focus increasingly on cost control," said Francisco D'Souza, CEO, Cognizant Technology Solutions, during a recent post-earnings analyst call. However, Infosys earned 21.9 percent of its revenues from maintenance services in the year-ended March 2009, down from 23.7 percent in the previous fiscal.