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Wells Fargo | BPO & IT-Thoughts of the Week

 

THOUGHT OF THE WEEK U.S. Transfer of Power. Yesterday marked the presidential inauguration (so we, Wells Fargo, hope our readers in the DC area managed to avoid the traffic and crowds). It caused us to reflect on our nation’s successful history of transfers of power from an outgoing president to the incoming one. Seamless and smooth transitions of leadership in technology eras are far less common and certainly far less planned and telegraphed than a presidential transition. Technology eras tend to come on, to use a Hemingway line, “gradually and then suddenly.” While the current “digital” era is now widely understood and accepted, it was much less so only a few years ago, especially among large organizations. The suddenness of the transition in technology service provider leadership can be even starker, in our view, as history is littered with undisputed industry leaders who failed to foresee and adapt to a technology shift. As the digital era progresses, Wells Fargo thinks the winners will be organizations that are agile (as the speed of change increases) and flexible (able to quickly shift even long-held and historically successful models to better compete in the changing world). Failing to do so could mean that service provider leadership ranks are dramatically shifted by the time of the next presidential inauguration.

 

THE WEEK AHEAD More from India, Hosting ASGN Management and Industry Visa Expert. Early Tuesday morning (U.S.-ET), #5 by revenue India-centric provider HCL Technologies (trades in India) reports, while #4 Wipro (WIT) reports Wednesday morning. HCL gives a good look into remote infrastructure outsourcing, while WIT is engineering services and work with Telecom/Hi-tech clients. We (Wells Fargo) suspect investors will want thoughts on any potential changes to H-1B/L-1 visa access/costs, especially as Senators Grassley (R-IA) and Durbin (D-IL) just indicated their intention to introduce broader reform legislation (than the house version introduced by Rep. Issa [R-CA]). On Wednesday and Thursday, we host immigration/visa consultant/expert Jeff Lande in Boston and New York. On Friday, we host the management of On Assignment (ASGN) in New York City.

 

HIGHLIGHTS OF THE WEEK Business Process Outsourcing. WNS reported strong FQ3 (Dec.) results and raised its FY17 (Mar.) guidance, as business momentum continues. That stated, many analysts on the conference call took a cautious tone, in our view, with much of the questioning focused on potential client caution post-Brexit and following the U.S. presidential election result. We (Wells Fargo) think the report was a good microcosm of investor challenges interpreting and positioning portfolios to reflect recent political developments. In our view (Wells Fargo), concern about potential negative shifts in client demand remain high, although companies across the IT and BPO services landscape have yet to report any fundamental impacts.

 

HIGHLIGHTS OF THE WEEKIT Services. IBM Services Q4 highlighted the ongoing transition from legacy work (ERP implementation, apps management, etc.) to new opportunities (cloud, digital, analytics, etc.), and how overall growth still remains challenged by legacy. We (Wells Fargo) believe, with the exception of Accenture (ACN) and On Assignment (ASGN), that the transition’s financial impact remains in the earlier stages for most of the IT services providers.

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