iGate CEO turns focus from woes
iGate Corp. CEO Sunil Wadhwani outlined a strategy Thursday for capturing a larger share of the offshore outsourcing market that one consulting firm says will grow to $70 billion in five years.
Only when asked by a shareholder, however, did he address the company's accounting problems, which nearly resulted in the company being delisted from the Nasdaq Stock Exchange. And he made no reference at all to the company's auditing firm resignation last Friday.
The company's former auditor, PricewaterhouseCoopers, had discovered a "material weakness" in iGate's accounts receivable and income tax reporting procedures, which led to delays in the company's filing its fourth quarter and annual reports this spring.
Chief Financial Officer Michael Zugay said yesterday that once the company filed its amended annual report with the Securities and Exchange Commission on May 2, it received a letter from the Nasdaq that it was back in compliance. He said Thursday the company is working to correct its internal financial controls.
Zugay said PricewaterhouseCoopers' resignation was part of the "normal cycle of business" and that a new auditor should be in place in four to six weeks.
The auditing firm said in a letter filed with the Securities and Exchange Commission that it will make no comment regarding the "current status of material weakness in internal controls or regarding the current status of any remedial actions taken (by iGate)."
At the company's annual meeting yesterday at the Sheraton Four Points Hotel in Findlay, Wadhwani showed pictures of four gleaming, new glass office buildings that iGate has opened in recent months in India. He explained that iGate's original business of providing information technology consulting and staffing services in the U.S. now will serve primarily to generate cash to grow its offshore sister, iGate Global Solutions.
Green Tree-based iGate's professional services business and its 84 percent-owned iGate Global each generated about $131 million in revenue in 2004. But Wadhwani said the U.S. services business, launched as Mastech Corp. in the late 1980s, while profitable, has limited growth potential.
Wadhwani cited a McKinsey & Co. report that predicts offshore information technology services will grow to a $50 billion industry within five years, representing 20 percent to 30 percent growth. And business process outsourcing will grow even faster, a rate of 50-70 percent, into a $20 billion industry.
Major corporations, such as iGate Global's top customer, General Electric Co., are increasingly moving business processes offshore to take advantage of the cheap labor and high degree of English proficiency in India.
"There are few players that have scaled up big-time," Wadhwani said of the business process outsourcing market.
Wadhwani said iGate is in the "second tier" of offshore companies in India, with names like Wipro, Infosys and Tata representing the big players.
While indicating that the facilities and management are in place to grow its offshore business, Wadhwani said the company's execution has been "poor."
Wadhwani said the company needs to hire more people right out of college in India to bring its costs down in the country where 3,000 of its 4,100 employees are located, in addition to increasing the percentage of client work done offshore.
Tim Slevin, an analyst covering iGate at Parker/Hunter Inc. said he expects improvements in iGate's offshore business, now that a more-seasoned management team is in place.
Wadhwani said growth of iGate Global will not result in job reductions at the parent company's local operations, where about 250 are employed.