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A Stumble Toward Software Nirvana

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Indian software sector slows down:

    Gone are the days when Bangalore’s army of software engineers scrambled to meet demand from U.S.-based clients and could confidently charge a premium for their services.

    The game has shifted to volumes, discounts and more spending to boost sales as software services risk becoming just another commodity like soap. “The bread-and-butter business of software maintenance will always be there, but that’s where the greatest threat of commoditization is coming from,” Jerry Rao, chairman of mid-sized software firm MphasiS BFL Ltd, told Reuters.

    Top-end work such as research and development still earns a premium, but a slowing global economy has hit demand even there. And competition has depressed profit margins: average hourly rates for software services have fallen to $20-25 in Bangalore from $25-30 two years ago, analysts say.

    “The days of very high profit margins in the industry are gone,” said Kiran Karnik, president of the National Association of Software and Service Companies. “Margins were unrealistic, unsustainable and attracted competition.”

    ….Tremors started flowing through India’s $10 billion-a-year software export industry last month when Infosys shocked investors with a forecast for 12 to 13 percent earnings growth, compared with 18 percent growth the past year.

    Infosys, India’s largest listed software exporter, was the first Indian firm to list on the Nasdaq and ranks alongside Wipro as India’s software showpiece. [Reuters]

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