Latest news with #Fersht
Economic Times
a day ago
- Business
- Economic Times
OpenAI's GPT-5 release raises revenue risk for Indian IT firms
Getty Images OpenAI may have just fired a warning shot at the Indian IT services model with the launch of the latest version of ChatGPT. GPT-5, ChatGPT's strongest coding version yet released last week, could further dent revenues for an already struggling $283 billion Indian software services industry, as clients may push for even lower pricing. With the upgraded version, the adoption of generative artificial intelligence in software development will rise, exposing IT services firms to revenue deflation risks, Kotak Institutional Equities said in a report. 'We believe GenAI can impact revenue growth for Indian IT by 2-3% for a period of 2-3 years on a net basis,' the report said, adding that the same applies for the customer service and business process outsourcing sector as Indian IT services industry, known for hiring software coders in large numbers, is already seeing the adverse impact of the AI-led disruption. Adoption of the technology has boosted productivity by 20-40%, thereby reducing reliance on engineers and shrinking the people-based billing for Indian IT companies. Besides, the tariffs-induced macro slowdown is also now weighing on the companies that reported negative to flat growth in the last two years.'If your business still depends on armies of coders grinding through routine builds, your margins are about to get hammered,' said Phil Fersht, founder and chief executive of technology consultancy firm HFS Research. 'The smart services players will use this tech to slash delivery times, reinvent pricing and ship services like software products.' Also Read: 'GPT-5 feels dumber': Users on OpenAI's newest model Clients, he said, will push for lower rates as AI boosts productivity, and services providers will need 12–18 months to retool delivery models and replace lost headcount-based revenue with higher-value, AI-augmented services. 'In the short term, expect margin compression before revenue growth,' Fersht launching GPT-5, OpenAI said it is 'our best AI system yet'. According to the company, GPT-5 is a significant leap in intelligence over all its previous models when it comes to coding, math, writing, health, visual perception and more said GPT-5 has substantial advances in reasoning, accuracy and improved instruction following, along with a drop in hallucination rates. This will reduce efforts, costs and risks around legacy modernisation for clients' technology infrastructure providing an edge for IT service providers, they said. Software service providers including large companies like Tata Consultancy Services, Infosys, HCLTech and Wipro are cannibalising their own revenues, as they are hit by a fundamental shift in the pricing model of the industry to outcome-based from employee-based. 'GPT-5 fundamentally lowers the cost structure for enterprise AI by significantly reducing API usage fees,' research firm Gartner said in a separate report.'OpenAI's enhancements — including 65% reduction in hallucination rates, and more transparent uncertainty communications — can reduce compliance risks and make GPT-5 more suitable for enterprise use cases (with the necessary guardrails), it added. Also Read: Is the AI hype justified? OpenAI's GPT-5 will be a potential barometer But not all is doomed. The likes of upgraded GPT versions could accelerate modernisation in the longer-term, aiding IT services firms provide end-to-end services of viable AI-enabled use cases for businesses.'This is the year of advanced models, and GPT-5 is designed to address the needs of developers by reducing hallucinations and simplifying coding through intelligent dynamic routing. While this introduces risks for traditional IT, it also creates new opportunities for innovative AI business use cases,' said Anushree Verma, senior director analyst at also unlocks new enterprise use cases and efficiencies through its improved correctness, steerability and productivity gains. But transformative business value requires thoughtful integration, strong governance and realistic expectations about current limitations, Verma according to Verma, it is important to note that GPT-5 does not achieve artificial general intelligence and is an incremental improvement over previous models. And organisations should remain vigilant and proactive in addressing potential the improvements, its malicious activity support remains similar to GTP-4 and hallucinations continue. 'GPT-5's advanced reasoning, multimodal processing and lower hallucination rates amplify misuse risks, like advanced scam and phishing generation or harmful outputs that risk bypassing restrictions across sessions,' the Gartner report also believes that new opportunities from GenAI adoption will offset revenue deflation in existing volumes over time.'However, we expect a lag in the pickup of new opportunities and for savings in software development to be deployed into these new opportunities, leading to a period of net headwinds,' it said. Also Read: OpenAI offers millions in bonuses to 1,000 employees amid AI talent war Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. As 50% US tariff looms, 6 key steps that can safeguard Indian economy As big fat Indian wedding slims to budget, Manyavar loses lustre Why are mid-cap stocks fizzling out? It's not just about Trump tariffs. The airport lounge war has begun — and DreamFolks is losing Stock Radar: UNO Minda eyeing fresh 52-week high in next few weeks; check target and stop loss for long positions Buy, Sell or Hold: Antique recommends buy on Siemens; Avendus upgrades SBI to Buy post June quarter results Stock picks of the week: 5 stocks with consistent score improvement and upside potential of up to 25% Weekly Top Picks: These stocks scored 10 on 10 on Stock Reports Plus
Time of India
5 days ago
- Business
- Time of India
Trump's tariff may hit Indian IT amid AI shift, slower spending
Bengaluru: As AI-driven efficiency gains increasingly impact deal wins, triggering steeper rate cuts, the 25% additional tariffs imposed by US President Donald Trump pose a double whammy to the Indian IT sector. Even as the Indian IT sector anticipated greater trade clarity by August—a development expected to boost US consumer spending—the announcement of an additional 25% tariff now threatens to dampen sentiment and stall the fragile recovery in discretionary spending. Phil Fersht, CEO of US-based HfS Research, said Trump's 25% tariff is the new IT services wrecking ball. "While services aren't directly taxed, the new tariffs stoke inflation in the US, forcing American firms to tighten discretionary spending. As manufacturing, logistics, and retail customers reel from higher input costs, they'll look to slash consulting and IT-outsourcing contracts first, slowing deal cycles and delaying rollouts. Deal slippage will be most visible in manufacturing, logistics, and retail verticals by the Sept quarter." Fersht believes the new levy is forcing American enterprises to slam the brakes on discretionary spending. "A tariff-fuelled downturn in the world's largest economy typically translates into weaker tech budgets, directly crimping Indian software export growth, which depends on US buyers for over half its $190 billion in annual revenues." by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Free P2,000 GCash eGift UnionBank Credit Card Apply Now Undo In a recent report, Kotak Institutional Equities said the demand environment took a slight hit due to uncertainty over the Trump administration's tariff regime, with considerable impact on retail, logistics, and manufacturing verticals. "The hi-tech vertical is focused on investing for the future (AI-related capex and opex) while optimising the present (cuts to discretionary spending and prioritising spends away from other bets to AI). The healthcare vertical is operating under considerable uncertainty with payers under cost pressure and Trump ratcheting pressure on big pharma with threats of tariffs and changes to the drug pricing regime," the note said. Fersht said that net-net, even a "goods" tariff of 25% acts like a tax on American buyers, cutting into the heart of India's IT services model. "Firms with higher discretionary digital exposure and deeper US footprints will bear the brunt, while the IT sector's giants may weather the storm more evenly as they are deeply rooted in stable, predictable maintenance engagements," he said. "Unlike China's rare-earths chokehold, India has little to threaten in return. Although US firms depend heavily on Indian IT talent, those services are broadly replaceable with other offshore providers or onshore automation—a blunt weapon that hurts more than it coerces." You Can Also Check: Bengaluru AQI | Weather in Bengaluru | Bank Holidays in Bengaluru | Public Holidays in Bengaluru Ray Wang, CEO of US-based Constellation Research, said tariffs only apply to goods, not services. However, the increased cost of component products that face tariffs will decrease service provider margins and potentially raise prices for customers. Stay updated with the latest local news from your city on Times of India (TOI). Check upcoming bank holidays , public holidays , and current gold rates and s ilver prices in your area.
Mint
28-07-2025
- Business
- Mint
Three years on, AI is prompting IT services companies to cut workforce.
Tata Consultancy Services (TCS) will lay off approximately 12,000 employees this fiscal year, as India's biggest private employer adjusts to slowing growth and rising artificial intelligence (AI). The company attributed the decision, which will primarily impact senior and middle-level employees, partly to AI. "TCS is on a journey to become a future-ready organization," a company statement said on Sunday. "This includes strategic initiatives on multiple fronts including investing in new-tech areas, entering new markets, deploying AI at scale for our clients and ourselves, deepening our partnerships, creating next-gen infrastructure and realigning our workforce model. 'As part of this journey, we will also be releasing associates from the organization whose deployment may not be feasible. This will impact about 2% of our global workforce, primarily in the middle and the senior grades, over the course of the year." This would imply that TCS, which ended the June quarter with 613,069 employees, will let go of 12,200 employees. Mint has learnt that TCS has already asked 100 employees in Bengaluru to go over the last fortnight. The TCS job cut comes 30 months after the debut of ChatGPT cast a shadow over the business model of India's IT giants, who employ armies of coders. Just two weeks ago, India's third-largest IT services HCL Technologies Ltd mentioned potential layoffs as automation replaces work done by graduates. 'The impact of AI is eating into the people-heavy services model and forcing the large service providers such as TCS to rebalance their workforces to maintain their profit margins and stay price competitive in a cut-throat market where clients are demanding 20-30% price reductions on deals," said Phil Fersht, chief executive of HFS Research. 'This trend will last for about a year as the leading providers focus on training junior talent to work with AI solutions, and are forced to move on people who will struggle to align with the new AI model we call services-as-software," said Fersht. Meanwhile, fourth-largest Wipro Ltd is planning English competency tests for senior executives. Employees faring poorly in the first-of-its-kind exercise may be put on performance improvement plans, according to three executives privy to the development, stoking fears of potential layoffs. 'Please note that it is mandatory to take the communication assessment and clear it," read an internal email shared with Wipro employees on 19 July and accessed by Mint. 'Not taking the assessment will invite disciplinary action. Not clearing it in one attempt will result in a Performance Improvement Plan (PIP)," read Wipro's email. A PIP is often seen as a prelude to termination. An email sent to Wipro seeking a comment went unanswered. At HCL Technologies, it is graduates who are in the crosshairs, unlike TCS and Wipro, where the heat is on middle and senior employees. "Of course, we have had a good amount of people released due to the productivity improvements. Now, not all of them are readily redeployable, because the requirements for some of the entry-level or lower-end skills are being addressed through automation and other elements," CEO C. Vijayakumar told analysts on 14 July. "The training and the redeployment time is longer. Some of them will be redeployed, but for others, it may not be possible. So, some amount of change in the industry is also kind of causing this," said Vijayakumar. HCL did not specify what percentage of workforce would be impacted. An email seeking comment went unanswered. The news of layoffs at TCS, first reported by Moneycontrol on Sunday, has also sparked debate about whether it is due to disruption from AI or the company's underperformance. "This round of layoffs is completely on account of slow growth," a TCS executive said on the condition of anonymity. 'Automation and GenAI cannot be displacing executives with 10 or more years of experience." TCS's under-performance under K. Krithivasan, who took over as CEO on 1 June, 2023, has caused anxiety among senior executives and a few analysts. In the June quarter, the company reported the slowest revenue growth among the top five, reporting a 0.59% sequential revenue decline to $7.42 billion. It's not a one-off either. Between 1 July 2023, and 30 June 2025, TCS achieved a 0.34% compounded quarterly dollar revenue growth, with its revenue increasing from $7.22 billion in the June quarter of 2023 to $7.42 billion in the June quarter of 2025. Infosys, in comparison, achieved a growth of 0.85% during this period, while HCL Technologies achieved 1.29%. For this reason, analysts at Kotak Institutional Equities believe TCS has lost its sheen compared to its peers in recent years. "TCS's relative resilience (ability to bounce back from a shock) versus peers has narrowed compared with the past. Relative competitive advantage has declined," its analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna wrote on 11 April. 'TCS did not lead growth in the past two years, even when demand was driven by cost take-outs. Performance in developed markets in FY2025 has been poor with a decline in North America," the Kotak note added. Keith Bachman, analyst at BMO Capital Advisors, said AI-related productivity benefits could be meaningful in the 20-30% range over time. "Hence, all services providers will need to 1) gain share and/ or 2) enable and capture new addressable market opportunities to sustain growth. We remain concerned on impact to long-term growth from AI efficiency," wrote Bachman, who was among the first to cite GenAI's threat to IT services firms, on 23 July. Nearly a year after the launch of ChatGPT, Bachman had cautioned, 'First, all IT service providers have adopted new tools or end solutions that caused pressure on billable hours, to include Robotic Process Automation (RPA) and code repositories, amongst other areas. Further, each new tool or solution generates higher efficiency than the previous tools or solutions."
Time of India
08-07-2025
- Business
- Time of India
Inside Capgemini's $3 billion deal for WNS: All you need to know
French IT services major Capgemini is keen on building its business process outsourcing (BPO) muscle with its latest acquisition: domain leader WNS . The deal, announced on Monday, will see the two companies pool their capabilities to address the growing enterprise demand for advanced, automated however, remain over the prospects. Analysts and investors are worried about the impact of artificial intelligence (AI) on the BPO sector, and the subsequent hit on revenue from the vertical. Capgemini shares reflected these worries during yesterday's take a look at the bones of the deal, and it's likely implications:Capgemini had agreed to pay $76.5 for each WNS share, which amounts to $3.3 billion (about Rs 28,280 crore) in cash. This is 17% higher than the closing price of the shares on July 3. They rallied 14% on IT major has secured bridge financing of €4 billion to pay this sum, as well as meet some other obligations. It will refinance the bridge with €1 billion cash and the rest through debt boards of both companies have consented to the deal, which now awaits approval from WNS shareholders and regulators. It is expected to be closed by the end of expects the acquisition to immediately boost its revenue and margins, projecting a 4% rise in earnings per share (EPS) in 2026 and 7% the year after. It sees projected revenue synergies between €100–140 million ($117.8–164.9 million), and an annual pretax run rate for cost and operating model synergies of between 50 million and 70 million euros by the end of WNS's $1.3 billion in revenue will be a drop in Capgemini's $25.5 billion business. It will, however, raise the headcount of the combined entity by a whopping 19%—an indication of the manual nature of WNS's deal comes at a time when enterprises are looking to replace people-intensive business operations with AI-driven solutions for lower costs and efficient execution. Pure-play BPO companies lack the technical knowhow to address this demand, according to HFS Research founder Phil Fersht. That is a gap the Capgemini-WNS combine can capitalise on.'By combining consulting, technology, and domain-driven BPO, Capgemini + WNS has the potential to lead AI-powered business transformation, with a robust incumbent WNS client base hungry to replace full-time equivalents (FTEs) with technology solutions,' he combined entity could compete on an equal footing with Accenture, and outcompete the Big 4 of consulting — PwC, EY, KPMG and Deloitte, Fersht noted."From a competitive perspective, another potential big win for Capgemini is its new positioning against the Big 4, which have traditionally dominated consulting and technology services. With WNS's operational expertise integrated into its offerings, Capgemini could deliver end-to-end transformation services that the Big 4 cannot – and at lower price points," the analyst analysts, and investors, are worried about the impact generative AI could have on the BPO sector, which Capgemini is looking to tap, noted brokerage house Morgan bear case is that AI would transform BPO from a people-intensive business to one that is much more highly automated and managed by software, the brokerage noted. This could lead to a fall in BPO revenues and expose incumbent vendors to competition from new entrants, it BPO space with generative AI is an opportunity that investors might favour, but there needs to be evidence that WNS is the right vehicle for such a change, Morgan Stanley while WNS is unlikely to prove transformational for Capgemini's business, the acquisition cost will weigh on the IT major's balance sheet for a couple of by British Airways in 1996 as a captive unit, WNS offers BPO and data analytics services to blue-chip clients, including Coca-Cola, T-Mobile, United Airlines, Aviva, British Gas, Virgin Atlantic Airways, M&T Bank, Centrica and McCain serves over 700 clients with a 64,000-strong workforce operating in 13 countries through 64 delivery reported a better-than-expected but marginal 0.6% drop in revenue at $1.31 billion for fiscal year 2025, with an 18.7% operating margin. Profit increased slightly to $170.1 million, from $147.5 million the previous year. Revenue has grown by around 9% in constant currency terms, on average, over the last three fiscal years. It also acquired for $63.4 million in the March quarter to expand its capabilities in data, analytics, and AI.
The Hindu
07-07-2025
- Business
- The Hindu
Capgemini makes Big 4 sit up with its plan to buy WNS for $3.1 bn, say global tech analysts
Capgemini, the Paris-based technology and digital transformation major, made the Big 4 – Deloitte, PwC, EY, and KPMG – sit up globally on Monday with its announcement of buying the India-grown business process management firm WNS for a total cash consideration of $3.3 billion, said global analysts. 'This acquisition will give Capgemini a new positioning in the global tech market against the Big 4 comprising Deloitte, PwC, EY, and KPMG, which have traditionally dominated the consulting and technology services,' Phil Fersht, CEO, HFS Research, a Cambridge-based analyst firm told The Hindu. Mr. Fersht said, from a competitive perspective, a potential big win for Capgemini was its new positioning against the Big 4, which have traditionally dominated consulting and technology services. 'With Capgemini's global scale and depth of technical capabilities, the addition of WNS could create an ideal incubation business to develop leading-edge Services-as-Software solutions to attack this huge $1.5 trillion emerging marketing opportunity,' Mr. Fersht said. 'The long-rumoured acquisition of WNS is finally here. Capgemini is returning to its acquisition lead growth model and acting as a major force in industry consolidation.,' said Peter Bendor-Samuel, founder and executive chairman of Dallas-based Everest Group. According to the Everest Group's chief, Capgemini is betting that the WNS book of business will provide a fertile ground for AI-driven transformation and allow it to develop new transformative AI-powered platforms. 'The potential is clearly there, but the journey will require significant additional investment and a resolute leadership team,' Mr Bendor-Samuel cautioned. The deal may trigger a new consolidation in the tech industry, he said. Mr. Bendor-Samuel said BPO (BPM) as a space has held up well in a world rocked by AI which has yet to have a significant impact on the space. 'However, this deal could be the start of a significant industry consolidation,' he opined. 'This may well kick off another round of industry consolidation as the large strategics look to grow inorganically and prepare for the massive changes that AI is starting to bring,' he forecast. According to tech industry observers, Capgemini, with WNS's operational expertise integrated into its offerings, could deliver end-to-end transformation services that the Big 4 cannot – and at lower price points. In some cases like procurement services, Capgemini acquires a well-established strategic sourcing capability built on WNS's 2017 Denali acquisition, strengthening Capgemini's F&A and procurement capabilities. Also, WNS's North American and U.K.-centric client base allows Capgemini to expand its geographic footprint. To a firm like Capgemini, Mr. Fersht further said, WNS's client base was a gold mine of sales opportunities where its client operations executives could easily explore to replace BPO services with Services-as-Software. 'Further, WNS's deep domain expertise, the cornerstone of its client growth rate, provides Capgemini, which has historically lagged behind other companies in terms of domain-specific operational BPO delivery,' he added. Earlier in the day, Capgemini and WNS had entered into a definitive transaction agreement under which Capgemini would acquire WNS for a total cash consideration of $3.3 billion. The French tech major said it would US-listed WNS for a cash consideration of $76.50 per WNS share, which represents a premium of 28% to the last 90-day average share price, of 27% to the last 30-day average share price and a premium of 17% to the last closing share price on July 3, 2025. The transaction would be accretive to Capgemini's normalised EPS by 4% before synergies in 2026 and 7% post synergies in 2027, it said. 'Capgemini's acquisition of WNS will provide the Group with the scale and vertical sector expertise to capture that rapidly emerging strategic opportunity created by the paradigm shift from traditional BPS to Agentic AI-powered Intelligent Operations,' said Aiman Ezzat, Chief Executive Officer of Capgemini. Keshav R. Murugesh, Chief Executive Officer of WNS said, 'Organisations that have already digitised are now seeking to reimagine their operating models by embedding AI at the core—shifting from automation to autonomy.' The transaction has been unanimously approved by the board of directors of both companies and is expected to close by the end of the year.
