Friday, 28 August 2009

Parity switches offshore partners

(By Anthony Miller – Friday 28th August 2009 10:15am). There are a couple of telling statements from ITSA (IT staff agency)-cum-mini-SI, Parity CEO, Alwyn Welch, in their first half report. Both statements reflect the reality of how competitors react in a tight market – i.e. they go after each other’s lunch!

No secret, though, that UK public sector IT spending is holding up much better than in the private sector, therefore, “several of our Resources (i.e. ITSA) competitors (are) now focussing more strongly on the attractive public sector market”, traditionally one of Parity’s strongholds (see Parity finds some solace in UK Public Sector).

Welch also confirmed that even the megadeal players are scavenging around the mid-market for business (see Parity update): “Solutions (Parity’s SI business) is seeing the larger European or Global systems integrators bidding for our typical size of project and discounting to be competitive,” though he alludes to a couple of wins against the big boys. However, even these wins can be Pyrrhic victories, as Parity just doesn’t have the scale to resource all the necessary skills in-house – indeed it has had to lay off some employees, and half the remaining staff are taking a voluntary couple of week’s unpaid leave in H2 (in effect, a 7.5% salary sacrifice). Therefore Parity has to rely on “margin-depleting associates” (i.e. contractors) to bridge the gaps, though it is still hiring Microsoft skills.

Maybe they will get some relief from a recently announced tie up with Bangalore-based SI, Sonata Software. Previously Parity had (unfruitfully) partnered with Bangalore-based Calsoft, and with London-HQ’ed Endava, which provides services from Romania and Moldova. When I spoke to Welch just now, he seemed far more confident that the Sonata relationship would work well for both Parity and the Indian SI as they look for joint go-to-market opportunities as well as in a traditional subcontract onshore/offshore model. Sonata has some 2,700 FTEs and last year (to 31st March ’09) turned over about $350m.

Unfortunately Parity is stuck between a rock and a hard place – and the place is getting harder – and the rock bigger! This will make it very tough for Welch to turn around the first-half pre-tax loss in order to keep the company above the waterline for the full year. But at least they held margin in their well-respected ITSA business, no mean feat to be sure.

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