Blue Screen Of Duds

Where the alter ego of codelust plays

Did outsourcing just save American jobs?

with 4 comments

Just a quick note before the day starts in full flow choc-a-bloc with meetings. For all those really loud people who have dismissed outsourcing and given it so much grief, go and take a look at IBM’s Q4 2007 earnings call. A lot of IBMers in the US are getting to keep their jobs because of their company’s strong performance have to thank outsourcing for it. Services, which is mostly driven by outsourcing has been their rock star performer:

Looking at our results by segment, Services continued the momentum we’ve seen over the year. Global Technology Services revenue was up 16%, profit up 26%. Global Business Services revenue was up 17%, profit up 9%. And we signed $15.4 billion of new business, and importantly short term signings were up 8%.

They have also benefited from having a truly global operation, which enables them to focus on emerging markets, that drew in a 3rd of their revenue for the quarter. You can expect a similar set of results from Google (growth, but at a much slower rate) and from other geographically diverse companies who can limit their exposure to the carnage that we will see this year in the US market. Google itself crossed the crucial landmark a while ago, when, in Q1 2007, their international revenues pretty much hit 50% of their total revenue.

Once again, companies that will take a huge hit are ones like Apple, who depend extensively on retail spending in the US markets, which is why they have been gradually moving into other segments (iPhone) for which you can look at recurring revenues per customer than a one time engagement. 2008 will be critical for Apple and if they have to escape the carnage, they have no choice but to forge ahead with the launch of the iPhone in other markets.

Then again, the iPhone is vastly overpriced for a market like India, even if you were to assume something like INR 16,000 as the price point. If they need a winner, they’ll need something in the sub-INR 10,000 price range to set the market alight and I don’t see something like that coming from Apple.

On an unrelated parting note, I think I’ve linked to David Manners’ blog on the semiconductor trade, but it is an absolutely lovely blog to read even if you are not a semiconductor wonk. Highly suggested.

Update: HP too, apparently, is in on the same game.


Written by shyam

January 18, 2008 at 9:24 am

4 Responses

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  1. i am waiting for them to outsource the ceo’s

    and for the outsource desitination countries for themselves to start outsourcing

    and for sure, in a few short years, the cheap labor market of the world will be the us of a …. will work for food will be on the top of the cv, the resume’

    and, jokes aside… any system base on consumption of useless stuff cannot survive, india and china will learn that soon enough

    in other news, would you like to buy a cheap bank?


    January 18, 2008 at 8:19 pm

  2. Shyam,

    IBM Global Services has been their star performer for quite some time. Also, add the fact that dollar is weak, which means international revenues are pushed up by falling dollar. Having 50k employees in India in their most profitable division helps, but surely that can’t be the only reason for a good quarter.

    But, I agree, that everybody will look for geographical diversification for revenue stream.

    Your comment about Apple is quite interesting. I guess, you should write a separate post about it. Apple couldn’t strike a deal with China Mobile recently, probably because of Apple’s high-handedness.


    January 18, 2008 at 8:27 pm

  3. Gregory,

    Quite a few CEOs now India are people who have come back from the US.

    The US market will recover, but probably never to its former glory and might, that is if we don’t have any other problems which are well ‘unprecedented.’

    India has a long way to go before the vast majority of the population will have the problem of consuming things they don’t need. They have a hard time getting stuff they need right now.

    Cheap banks sounds like a Nigerian spam email!!!


    January 19, 2008 at 12:39 pm

  4. Shashi,

    I’ll concede there is a bit of hyperbole in the post, but none that is ill-deserved for the kind of crap that has been thrown at outsourcing. The point being, they do benefit from it too.

    The good quarter is also largely due to the fact that IT spending will slow down starting Q1, Q2 2008, it will show up in the numbers only after that, which is when services will save their skin to a great extent. And that business would only be possible because of the margins that outsourcing affords them.

    There should ideally be another post of Apple and mobility in general. Just need to find the time to dig up the numbers and do a proper one than cite just gut feeling as the only available rationale.

    And as always, your inputs are valued much!


    January 19, 2008 at 12:45 pm

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