Wipro Ltd. - Company Profile

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Wipro Ltd.

+91-80-2844-0011

Doddakannelli
Sarjapur Road
Bangalore, Karnataka 560035, India
www.wipro.com

Sales

$1.3 billion

Business Description

We are a leading global IT services company. In the April 2003 report titled ‘Can Outsourcers Really Transform IT?” by Forrester Research, Inc, we were ranked among the top 10 global IT services players for transformational capabilities in IT outsourcing. Forrester ranked the transformational capabilities of IT outsourcers based on a number of factors, including business value focus, client management practices, operational management, outsourcing specific research and development activities, financial strength and growth in client base. We provide a comprehensive range of IT services, software solutions, IT consulting, business process outsourcing, or BPO, services and research and development services in the areas of hardware and software design to leading companies worldwide. We combine the business knowledge and industry expertise of our domain specialists and the technical knowledge and implementation skills of our delivery team in our development centers located in India and around the world, to develop and integrate solutions which enable our clients to leverage IT for achieving their business objectives. We use our quality processes and global talent pool for delivering time to development advantage, cost savings and productivity improvements.

In India, we are a leader in providing IT solutions and services. We also have a profitable presence in the Indian markets for consumer products and lighting.

We have three principal business segments:

• Global IT Services and Products. Our Global IT Services and Products segment provides IT services to customers in the Americas, Europe and Japan. The range of services include IT consulting, custom application design, development, re-engineering and maintenance, systems integration, package implementation, technology infrastructure outsourcing, BPO services and research and development services in the areas of hardware and software design. In April 2003, we reorganized our business segments. As part of this reorganization, our IT-Enabled Services business segment, which was our subsidiary Wipro Spectramind Services Private Limited, or Wipro Spectramind, was consolidated into our Global IT Services and Products business segment. In addition, we eliminated our HealthScience segment, consolidating the IT services component of the HealthScience segment into our Global IT Services and Products business segment. We reclassified the remainder of our former HealthScience segment, Wipro Biomed, into Others for purposes of financial reporting.

Pursuant to this reorganization, our Global IT Services and Products business segment now provides BPO services to clients in North America, Europe, Australia and other markets. Our Global IT Services and Products segment also provides IT services to the healthcare and life sciences markets.

Our Global IT Services segment accounted for 75% of our revenue and 85% of our operating income for the year ended March 31, 2004.

• India and AsiaPac IT Services and Products. Our India and AsiaPac IT Services and Products segment is a leader in the Indian IT market and focuses primarily on meeting the IT products and services requirements of companies in India, Asia-Pacific and the Middle East region. This business segment accounted for 16% of our revenue and 7% of our operating income for the year ended March 31, 2004.

• Consumer Care and Lighting. We leverage our brand name and distribution strengths to sustain a profitable presence in niche markets in the areas of soaps, toiletries, lighting products and hydrogenated cooking oils for the Indian market. This business segment accounted for 6% of our revenue and 5% of our operating income for the year ended March 31, 2004.

Industry Overview

Global IT Services and Products

In a challenging global business environment, the role of IT in transforming businesses and economies has been widely recognized. The shift in the role of IT from merely supporting business to transforming business, which is driving productivity gains and creating new business models, has increased the importance of IT to the success of companies worldwide. In response to a volatile market-place, companies are integrating IT processes with core business activities, with their clients and with their suppliers. To serve these companies, IT service providers require cross functional teams of domain experts with deep industry knowledge as well as process and implementation specialists with technical expertise and application development skills, having the ability to integrate solutions across disparate IT systems.

The focus for companies is on objective factors such as:

• Realizing a defined return on investment on their IT spending;

• Realizing measurable cost efficiencies;

• Reducing the cycle time of introducing new software applications, commonly known as time-to- application advantage;

• Reducing the time it takes to develop new technologies, commonly known as time-to-market advantage; and

• Increasing the focus on core activities by outsourcing IT infrastructure to integrated IT service providers.

According to the Worldwide IT Services Forecast and Analysis, 2002-2007 report published by International Data Corporation, or IDC, in March 2003, the global IT services market is estimated to grow from approximately $354 billion in 2002 to approximately $490 billion by 2007, reflecting a compound annual growth rate, or CAGR, of 6.7%.

Companies are increasingly using external professional services as an effective tool to meet their IT requirements. Outsourcing IT requirements enable companies to lower operating costs, realize productivity gains and convert a portion of their fixed costs into variable costs. By deploying high-speed communications equipment, companies can access skilled IT services from remote locations to meet their complex IT requirements in a cost-effective manner.

According to an August 2002 Gartner report, 79% of large U.S. corporations are currently engaged in offshore outsourcing, while the remaining 21% plan to engage in offshore outsourcing within the subsequent 12 months. According to the same report, India is a preferred offshore destination accounting for more than 85% of offshored services. Leading global IT services companies are facilitating this trend by expanding their offshore operations in India. According to ‘Confronting the Offshore Wave’, a report published by Morgan Stanley Equity Research on June 5, 2003, offshore services, which represent 2% of the Global IT services market in 2002, are expected to grow to 4% of the Global IT services market by 2005.

Pure play IT services are increasingly becoming a high-volume commoditized service offering. To differentiate themselves in the marketplace, IT service providers are offering the unique value proposition of a comprehensive range of service offerings, global sourcing models, IT systems integration capabilities, and a combination of deep business knowledge and implementation expertise in the service offerings. Indian IT service providers have also acquired or are developing consulting skills. This is enabling them to effectively compete against leading global IT services companies as integrated service providers.

The India Advantage. According to a survey of U.S. software service vendors conducted by the World Bank, India is one of the leading offshore destinations for companies seeking to outsource software development of IT projects. According to the August 2002 Gartner report, India ranked as the primary destination for offshoring IT services by more than 70% of large U.S. corporations surveyed, while the next highest country was preferred by 10% of the corporations surveyed.

A McKinsey study conducted in 2002 for the Indian National Association of Software and Service Companies, or NASSCOM, estimates that the Indian IT services export, as well as the product and technology services, markets are expected to grow from approximately $6 billion in 2002 to an estimated $36 billion in 2008.

There are several key factors contributing to this growth of India-based IT services:

• India-based IT companies have proven their capability to deliver IT services that satisfy the requirements of international clients who expect the highest quality standards. According to Carnegie Mellon Software Engineering Institute’s Survey of High Maturity Organizations and High Maturity Workshop Research, as of October 2002, 50 of the 74 high maturity organizations choosing to list themselves as organizations with SEI-CMM Level 5 certification, the highest level of certification, are based in India. SEI-CMM is the Software Engineering Institute’s Capability Maturity Model, which assesses the quality of organizations’ management system processes and methodologies.

• India has a large, highly skilled English-speaking labor pool that is available at a relatively low labor cost. According to NASSCOM, the Indian software industry employed 416,000 software professionals as of March 31, 2002, making it the second largest employer in the IT services industry after the United States. In addition, India has more than 2,100 engineering colleges and technical institutes that train approximately 75,000 graduates annually in IT. According to the NASSCOM-McKinsey report, U.S. and U.K. companies could expect total savings of 40% to 60% by using offshore processes because of the differential in wages paid by U.S. and U.K. companies in comparison to their India-based counterparts. Although wages in India are rising faster than in the United States, the labor rate differential is currently anticipated to remain a competitive advantage for Indian companies.

• With the time differential between India and its largest market, the United States, Indian companies are able to provide a combination of onsite and offshore services on a 24-hour basis on specific projects.

The traditional model for most large companies has been to manage most functions internally. However, current global macroeconomic conditions and intense competitive pressures have forced companies to pursue new business models. Companies are focusing on their core activities and outsourcing critical but non-core activities to companies that specialize in such non-core functions. Outsourcing enables companies to reduce their operating costs, realize benefits of scale and flexible cost structures and achieve significant process improvements.

According to the November 2003 report published by IDC, titled “The Growing BPO opportunities for India” (the “November 2003 IDC Report”), the worldwide BPO market is expected to grow from $773 billion in 2002 to approximately $1 trillion by 2006, a CAGR of 9%. It is anticipated that this growth will be primarily led by industries having significant customer interactions like banking and financial services, insurance, telecommunications, retail and healthcare.

India is a leading destination for BPO services. The proven track record and client relationships of established Indian IT services companies, favorable wage differentials, availability of a large, high quality, English speaking talent pool and a regulatory environment more friendly to investment are facilitating India’s emergence as a global outsourcing hub.

A major portion of revenues is derived from customer care services and back office processing. According to the November 2003 IDC report, the level of customer care services exported from India is expected to grow from $ 1.3 billion in 2003 to around $4.8 billion by 2006, and the level of back office processing exported from India is expected to grow from $ 1.6 billion in 2003 to around $6.1 billion by 2006. The total BPO market in India is expected to grow from $ 3.5 billion in 2003 to $ 12.2 billion in 2006, a CAGR of 54%.

According to the November 2003 IDC report, the Indian BPO service providers are primarily engaged in providing rule-based customer care services and back-office processing services. These services are parts of a functional process and not the entire process. IDC expects Indian BPO service providers to transform into functional experts assisting clients in achieving strategic business transformation.

India and Asia Pac IT Services and Products

The domestic Indian IT industry is primarily composed of hardware, packaged software and IT services. According to a report titled ‘Market Statistics, 2003’ published by Gartner Dataquest in December 2003 the domestic Indian IT market is estimated to grow to US$ 10.2 billion by 2007, reflecting a compound annual growth rate of approximately 12% from 2002, when US$ 5.7 billion was spent. According to a November 2003 report published by IDC titled “Indian IT Services Forecast and Analysis, 2002-2007”, the IT services market in India is expected to grow to approximately $3.3 billion in 2007 from $1.6 billion in 2003, representing a compounded annual growth rate of 21.2%.

In India growth in demand for IT products and services is driven by the business process transformation initiatives in the banking and financial services sectors. In the telecommunication sector demand for IT infrastructure is driven by deregulation and the business imperative to strengthen back end infrastructure/ processes to manage a significant growth in customer bases. Further, e-governance initiatives have increased demand for IT strategy consulting, IT products, network integration services and e-sourcing solutions.

Consumer Care and Lighting

The consumer care market that we address includes soaps, toiletries and infant care products. A large portion of our revenues is derived from the sale of soaps. The market for soaps in India is dominated by established players like Hindustan Lever (a subsidiary of Unilever). We have a strong brand presence in a niche segment and have significant market share in select regional geographies. We expect to increase our market share by acquiring established brands which complement our brand presence and distribution strengths. In lighting, we operate in the domestic market for household lamps as well as institutional market for luminaries and lamps. The market for lighting is led by Philips India (subsidiary of Philips NV). We have a strong brand presence in select regional geographies for domestic lighting, as well as an established institutional presence in select segments like pharma lighting and software development centre lighting.

Competitive Strengths

We believe that the following are our principal competitive strengths:

Comprehensive range of IT services

We provide a comprehensive and integrated suite of IT solutions, ranging from consulting to application development and maintenance and take end-to-end responsibility for project execution and delivery. We have over 13 years of experience in software development, re-engineering and maintenance for our corporate customers and provide managed IT support services at the client’s site through our 53 offshore development centers in India and several near shore development centers located in countries closer to our clients’ offices. We believe that this integrated approach positions us to take advantage of key growth areas in enterprise solutions, including IT services data warehousing, implementation of enterprise package application software such as resource planning or ERP, supply chain management or SCM and customer relationship management or CRM. In many large outsourcing deals, BPO services are an integral part of the total services outsourced. Integrating BPO services into our portfolio of service offerings has provided us with a strong competitive advantage over other IT services providers.

World-class quality as measured by SEI-CMM and Six Sigma initiatives

One of the crucial factors in our success has been our commitment to pursue the highest quality standards in all aspects of our business. We were assessed at SEI-CMM Level 5, the highest level of quality certification, in January 1999, making us the first IT services provider in the world to achieve this standard. SEI-CMM is widely accepted in the software industry as a standard to measure the maturity and effectiveness of software processes. Our SEI-CMM Level 5 rating is supported by our Six Sigma initiative, which is an internationally recognized program focusing on defect reduction and cycle time reduction. Our Six Sigma program was launched in 1998. Six Sigma represents a quality standard of less than 3.4 defects per million opportunities in which a defect may arise.

Broad range of research and development services

Our strengths in research and development services position us to take advantage of a recovery in global research and development spending. We are one of few major IT services companies in the world capable of providing an entire range of research and development services from concept to product realization. We provide IT services for designing, enhancing and maintaining platform technologies including servers and operating systems, communication subsystems, local area and wide area network protocols, optical networking systems, Internet protocol based switches, routers and embedded software, including software used in mobile phones, home or office appliances, industrial automation and automobiles. We acquired these skill sets through our earlier research and development efforts in the design of computer hardware products for the Indian market when the Government of India did not allow these products to be imported.

Global delivery model

One of our strengths is our global delivery model, which includes our offshore development centers, or ODCs, and our nearshore development centers. We were among the first India-based IT services companies to implement the offshore development model as a method for delivering high-quality services at a relatively low cost to international clients. Our global delivery model has many features that are attractive to our clients, including:

• A time difference between the client site and the ODC which allows a 24-hour work schedule for specific projects;

• The ability to quickly increase the scale of development operations;

• Increased access to our large pool of highly skilled IT professionals located in India; and

• Physical and operational separation from all other client projects, providing enhanced security for a client’s intellectual property.

Established track record with premier international customer base

As of March 31, 2004, our Global IT Services and Products segment had over 347 active clients, which included over 125 Global 500 or Fortune 1000 companies. We had 44 clients that represented at least $5.0 million in revenues in the fiscal year ended March 31, 2004. We believe that having an established base of high quality, high technology clients provide us with the following competitive advantages:

• The type of clients we target are likely to maintain or increase their IT outsourcing budgets;

• Our ODCs support critical IT applications of our large clients. The clients are therefore likely to provide a high level of repeat business.

• Our IT professionals are consistently exposed to the latest technologies that we are then able to leverage to procure business from other clients.

Ability to access, attract and retain skilled IT professionals

We continue to develop innovative methods of accessing and attracting skilled IT professionals. We partnered with a leading Indian university to establish a program for on the job training and a Masters degree in software engineering. We have also sought to open facilities in various cities in India to better access local professionals. We believe that our ability to retain highly skilled personnel is enhanced by our leadership position, opportunities to work with leading edge technologies and focus on training and compensation. In fiscal 2002 we were assessed at People Capability Maturity Model or PCMM level 5, the highest level of certification. PCMM is widely accepted as a standard to measure the maturity and effectiveness of human resources practices within a company. As of March 31, 2004, in our

Global IT Services and Products business segment we had over 19,000 IT professionals and over 9,300 services professionals in our BPO services business. We expect to grow these numbers in the foreseeable future. One of the keys to attracting and retaining qualified personnel is our variable and performance linked compensation programs. We have had an employee stock purchase program since 1984 and employee stock option plan and a productivity bonus plan since October 1999.

Broad distribution network and strong sales force in India

We have a large and growing distribution network for our domestic businesses. For our Indian IT Services and Products business segment, our direct sales force targets large corporate clients and over 235 channel partners in over 100 locations, and focuses on medium and small enterprises. For our consumer care and lighting products, we have access to more than 1.2 million retail outlets. This distribution reach provides us with a significant competitive advantage and allows us to grow our business with minimal increases in personnel.

Strong brand recognition in the Indian market

We believe that our brands are some of the most well recognized brands in the Indian market. We have been operating in the Indian market for over 58 years and believe that customers equate our brand with high quality standards and a commitment to customer service. We enhance the value of our brands through aggressive and selective advertising and promotions.