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August 29, 2000
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Makeover at software companies

NetScribes/Ganesh Ramamoorthy

It's time for consolidation. Post-Y2K (the year 2000 conversion), the Indian software industry, which was catapulted into the international limelight in the race to fix the bug, is now in the throes of a makeover.

The current wave began some time late last year, when a number of companies restructured their operations either through spin-offs or through mergers and acquisitions. Some undertook re-engineering to revive their post-Y2K strategies while others went public to reposition themselves. Some shifted their focus to niche markets and still others hived off their businesses to breathe new life into their core businesses. With changing businesses, even the old names are being shed.

"It's a healthy sign for the industry. For an industry that churned out Y2K bug fixes a year-and-a-half back, the transformation is a much-needed one," says an analyst with Credit Suisse First Boston.

"The restructuring is essential, given the global implications of the business. With more and more companies opting for ADR and GDR listings, a leaner and more focused company will benefit more. So, the sooner they recognise their core competencies and start restructuring and consolidating, the better it will be for investors to take a more focused approach to valuation," he adds.

Take, for instance, the case of Silverline Industries. To shake off the image of a low-end offshore/on-site service provider, Silverline Industries re-acquired the equity holding of Silverline Technologies Inc from Silverline Holdings Corp and rechristened itself Silverline Technologies to become a more balanced player with a portfolio of offerings encompassing e-commerce, customer relationship management and systems re-engineering. The new-look company has also expanded its client base, moving into Europe and the US.

A more focussed attempt to reposition the businesses is apparent in the case of Trigyn Technologies (formerly Leading Edge Systems) and BFL Software, both of whom, after facing a crisis of sorts in their core business of software services, went into acquisition mode.

Trigyn acquired eCapital Solutions along with its subsidiaries in a stock-swap deal and changed its focus to three major business areas -- telecom, e-business and systems application software/financial services. It also hived off eCapital's two product businesses -- eVector and Inter-Site Management Systems -- into separate companies.

BFL Software acquired MphasiS Corporation in a bid to get a toehold in the emerging technologies arena of e-commerce and real-time customer integration. While the focus was clear in both acquisitions, both Trigyn Technologies and BFL-MphasiS are still bogged down by post-acquisition integration and restructuring issues.

Another business restructuring candidate was Pentamedia Graphics (formerly Pentafour Software and Exports), which hived off its software services business, including overseas operations, to Pentasoft Technologies (formerly Pentafour Communications) to concentrate on its core competence. The hive-off, involving a purchase consideration of $205 million, transferred the mantle of the software business to Pentasoft Technologies.

Similarly, while Wipro hived off its non-core, low-margin peripherals business to focus more on e-commerce and Internet, Global Telesystems will merge with its subsidiary, Global Electronic Commerce Services, to sharpen its focus on e-commerce and telecom infrastrucuture business.

Even as these companies continued their acquisitions and re-engineering strategies as a tool to survive in the post-Y2K era, others started focusing on niche markets. Companies such as VisualSoft Technologies, Tata Infotech and Rolta India have found a niche and are trying to consolidate in these areas. Meanwhile, Ramco Systems, Sonata Software, PSI Data Systems, RS Software, Aptech and Maars Software are focusing their energies on e-commerce and Internet.

Ramco with its 'Interactive Architect Strategy', the emerging convergence area for strategic consultants and IT-enablers, Aptech with its 'E-Architect Strategy' and through its subsidiary, BconnectB, and Sonata Software with its focus on e-commerce and mobile commerce are all attempting to carve a niche for themselves in this domain.

A quick look at the results of these software companies for the first quarter ended June 30, 2000, reveals that companies that restructured post-Y2K have largely benefited. "The overall billing rate of the industry has improved (to about 21 per cent), with net profits for the quarter growing by about 90 per cent against previous corresponding quarter," says an analyst with Birla Sun Life.

Companies that have gained due to the restructuring in the last quarter include Silverline, DSQ Software, Wipro, Global Tele Systems, Aptech and Tata Infotech. "On an average, e-commerce has contributed by more than 35 to 40 per cent to the total revenues of these companies during the last quarter," the Birla Sun Life analyst adds.

The buzzword today in the Indian software industry is e-commerce. From mere Y2K bug-fixers to e-commerce solutions providers, the software industry has transformed itself into an entity to reckon with. "Indian software companies have done well to move early into these emerging markets. This will not only give them a competitive advantage over others, but will also help them develop competencies that will hold them in good stead in the post-Y2K world," he says.

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