Due to the outcome of the debt crisis in Europe which was evident from the June quarter, both large and mid-sized IT firms witnessed a decline, or at most a stagnation of revenues from the European market. This, the analysts argue, is due to changes in the rates on the market floor, customer decisions that they make as a result of new market conditions, and the generally low turnover in large-volume sales particularly in manufacturing.
This comes as most IT firms had a field day in the FY24 financial year which saw the firms record large deal wins and decent revenues from the Europe market. However, the last quarter had a different story; while the small and medium enterprises of this ocean namely CMC, KPIT, L&TInfotech, and Allsec lost the light on the decreasing European receipts, the bigger fishes in this ocean TCS, HCLTech, Infosys, and Wipro were able to explain this decrease.
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IT firm's revenue continues to shrink among major players
Amid all the large players, TCS, Wipro, and Infosys said that the European portfolio was down by 20 bps. HCLTech, however, deteriorated by 100 bps primarily because of the weak performance of the firm’s ASAP Group, which it acquired some time ago. Especially for the German automotive industry, this underperformance was a problem, although the business had been under pressure in general.
HCL Technologies CEO C Vijayakumar shared his opinion on this, he said, “We have observed that there is a discernable weakening in automotive verticals, particularly in the German marketplace. ” The drastic diminishing of the German automotive market is seen as a negative impact on IT companies.
The Evaluation of Problematic Issues in the European Market
In addition, EVP Pareekh Jain, CEO of EIRTrends and Pareekh Consulting also pointed out the situation in the European markets. He said that specific European revenue last year has proven to be much better in contrast to the US primarily due to larger deal size. But in the latest one and a half to two years, there have been a few large M&A transactions especially those that are crossing the billion-dollar mark.
Jain went further in his presentation to note that Europe is at the moment experiencing a tough macroeconomic environment, which includes a high interest rate and other extra political factors which include the sp Gemini 11/141ere elections in the United Kingdom. Hence it is probable that these factors have compelled the clients to consider an extra margin of safety hence do not indulge in any voluntary spending that would be attributed to the quarter.
The European market can be said to pose certain head-scratching realities to the Indian IT service providers. Restrictive language and the requirement for localized centers have proven to be this market’s barriers, capabilities of which large companies managed to work out to the degree seen in the US. As a result, most organizations are seeking acquisitions in Europe to fortify their presence there.
Impact of This Change on the Manufacturing Vertical
The manufacturing segment was also affected in Jun 19Q and it needs to be mentioned that FY24 seemed pretty good for this segment. Thus, this decline was found to be most significant in the case of large IT enterprises’ results.
For instance, Wipro said that in the second quarter April to June, it experienced 20 basis points fall in manufacturing but 90 basis points fall every year. While HCLTech and LTIMindtree did not do well in this segment because of the project execution and seasonal factors, Infosys and TCS have shown flat performance in this business vertical.
The leadership of HCLTech pointed to the realities of the situation and shared the following views, “For ER&D services, there was a sequential decline due to downs in manufacturing and mid-tech. ” Just like the management of HCLTech, the management of Wipro also noted a consistency of softness in the manufacturing sector majorly due to the completion of big programs and absence of adequate new acquisition.
The manufacturing vertical has continued to be an important cash-generating source for IT companies, constituting about 6-10% of total IT revenue. However, this sector has recently shown that it is not as secure as before by recording slight decreases in its performance.
Future Planning and Management Strategy
Even though they have faced many setbacks in Europe, IT companies are still guarded about their success fair in the US market. For instance, TCS is expected to sustain its operating margin band of 26–28% during the financial year ending in March 2026. The Analyst the company’s CEO K Krithivasan has pointed out the issue of revenue diversification stating that the company considers its market overseas as a potential revenue driver.
Infosys also upped its sales growth guidance for FY2025, meaning that clients are starting to spend on technology now, which should help drive Infosys’ prospects.
Further, HCLTech believes in the exemplary pipeline along with renewed order wins to deliver superior performance in subsequent quarters. The company’s CEO Vijayakumar ventured confidently about the ER&D services his company has to offer, saying: “With the pipeline we have and some recent wins we have seen it would get going.”
Other researchers from Kotak Institutional Equities have also observed a positive change in guidance for some of the business entities in the BFSI sector because of the enhanced number of recommendations from the US and Europe. With the continued revival of capital markets and a clearer macroeconomic environment, better performance is expected for the BFSI sector. Nevertheless, there could be threats in the future such as insourcing, the use of generative AI, and phasing out of end-of-life systems and platforms.
In summation, Europe’s manufacturing vertical IT firms faced some difficulty in Q2, as highlighted above, however, there are still opportunities for international diversification and cautious optimism for future targets and expansion.
