India's NIIT hit by U.S. downturn

60% of Indian software services exports are slated for the U.S. market

In this story: Longer selling cycles Affecting everyone Hope in outsourcing RELATED STORIES, SITES

By Staff and wire reports

NEW DELHI, India -- NIIT warned investors that its U.S. software revenues for the second quarter would be below expectations.

NIIT is the first big Indian software company to admit it would be hit by the slowdown in the U.S. economy.

India's software exports are expected to exceed $6 billion this year. But with 60 percent of total exports slated for the U.S., analysts say Indian software firms will no doubt be hit by the downturn.

Longer selling cycles

"NIIT is experiencing longer selling cycles for large value software business in the U.S.," the company said in a statement.

It quoted NIIT's chief executive officer, Vijay Thadani, saying that the growth in operating margins would be lower in the second quarter.

Software services revenues from the United States accounted for 31 percent of NIIT's total revenues and 55 percent of its total software services revenues in the first quarter.

NIIT, which issued its statement after the Bombay stock market closed, is to release second quarter results on April 19.

India's software exports are expected to top $6.2 billion during the year to March, up more than 50 percent from last year. About 60 percent of this goes to the United States.

Affecting everyone

The U.S. economy's loss of steam and fears it could reduce information technology spending has been dragging down the shares of Indian information technology firms for some time.

Analysts say NIIT's profit warning sends a bad message to investors as it heralds tough times for all Indian software makers.

"It's affecting everyone," Ravindra Data, Gartner Group senior software analyst, told CNN.com.

"The U.S. is the largest buyer of IT products all over the world. And for a lot of Indian companies, the U.S. is the major buyer without a doubt."

With 60 to 70 percent of software revenues coming from American buyers, the U.S. economic slowdown would be reflected in the general financial performance of the sector.

Hope in outsourcing

To counter the downturn, NIIT is looking to other markets to drum up business.

"They are expanding in Europe and Asia Pacific so they are not entirely dependent on U.S. market," Datar said.

Analysts are also hopeful that India will remain a target for IT outsourcing as U.S. firms look for cost effective and high quality alternatives to expensive software production.

"Companies are looking for ways to cut costs and will outsource to outside companies. India can score a major gain there," Datar said.

Reuters contributed to this report.

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