UPDATE 3-Wipro Q1 profit misses forecast, remains cautious

(Adds shares close, Wipro hiring)

By Sumeet Chatterjee

BANGALORE, July 18 (Reuters) - Indian information
technology outsourcers Wipro (WIPR.BO: Quote, Profile, Research) and Satyam (SATY.BO: Quote, Profile, Research)
posted higher quarterly profits, but said the business outlook
was cloudy due to slowing Western economies, sending their
shares lower.

Wipro Ltd, the country's No.3 software services exporter,
on Friday missed forecasts with a 15 percent rise in quarterly
profit, while its smaller rival, Satyam Computer Services Ltd,
beat forecasts with a 45 percent surge in earnings.

But both firms were cautious about outsourcing prospects in
the near term, as major U.S. clients battle weakening economies
and skyrocketing oil prices.

"The current situation hasn't improved compared to last
quarter, particularly in the financial services sector,"
Wipro's Chief Financial Officer Suresh Senapaty said.

"Some of the U.S. banks are in trouble, so the uncertainty
has still not disappeared."

Wipro's shares closed 3.8 percent lower at 365.55 rupees,
after sinking as much as 6.5 percent, while Satyam stock ended
7.5 percent lower at 382.95 rupees, after tumbling nearly 10
percent. Other software stocks also fell.

The main Mumbai index rose 4 percent, while the
sector index dropped 2.6 percent.

"The very cautious guidance is not helping. Sentiments have
been hit and investors are dumping the stocks," said Jayesh
Shroff, fund manager at SBI Mutual Fund.

Wipro Ltd (WIPR.BO: Quote, Profile, Research), majority-owned by its billionaire
Chairman Azim Premji, forecast its IT services revenue this
quarter would rise 2 percent from April-June to $1.09 billion,
less than a 3.5 percent sequential rise in the June quarter.

In the June quarter, Wipro received a quarter of its
revenue from financial services companies.

But the firm expects prospects to improve in the second
half of the financial year ending in March 2009, as overseas
clients look to cut costs and boost efficiency amidst slowing
economies.

Wipro was also confident of maintaining or improving
margins for the full year, despite an "adverse impact" from
wage hikes in the September quarter, thanks to improved pricing
and a strong pipeline of orders, Senapaty said.

The firm, which offers system integration, software
application development and back-office services, said net
profit rose to 8.14 billion rupees ($190 million) in its fiscal
first quarter to June, from 7.10 billion a year ago, under U.S.
accounting rules.

Profit was hurt by a drop of 272 million rupees in other
income, as compared to a gain of 991 million rupees a year ago.

A Reuters poll had forecast a net profit of 9.02 billion
rupees for Bangalore-based Wipro, which counts telecoms gear
makers Cisco (CSCO.O: Quote, Profile, Research), Credit Suisse (CSGN.VX: Quote, Profile, Research), Nortel (NT.N: Quote, Profile, Research)
and Nokia Siemens Networks [NSN.UL] among its clients.

Revenue rose 42.5 percent to 59.62 billion rupees, as it
added 31 clients during the quarter.

Bangalore-based Wipro added just 108 staff in the June
quarter, compared with 3,811 in January-March and 5,225 a year
ago. Analysts said this was a sign of slowing outsourcing
demand.

But Senapaty said Wipro was focusing on boosting efficiency
of its existing staff and headcount additions were not a
reflection on the earnings growth.

Wipro's earnings (WIT.N: Quote, Profile, Research) follow results from bigger rival
Tata Consultancy Services (TCS.BO: Quote, Profile, Research), which narrowly missed
forecasts, and second-ranked Infosys Technologies (INFY.BO: Quote, Profile, Research)
(INFY.O: Quote, Profile, Research), which beat estimates. The two larger rivals have also
warned of challenging times ahead.

"We are yet to see clear and consistent signals emanating
from the banking and financial services sector, which continues
to be fluid," Satyam Chairman B. Ramalinga Raju said.

"The direction is not clear ... We have not seen any
cancellations, but decision-making appears fluid."

Comparatively, cheaper wages had helped Indian outsourcers
ride an outsourcing boom for years, but the growth slowed last
year when Wall Street banks took a hit from the subprime crisis
and as the U.S. economy lurched towards recession.

Although Indian outsourcers are rapidly expanding to
Europe, Asia and the Middle East to cut their dependence on the
United States, the country still accounts for roughly half
their sales.

New York-listed Satyam (SAY.N: Quote, Profile, Research), which specialises in
business software and offers back-office outsourcing services,
said consolidated net profit for the quarter rose to 5.48
billion rupees ($128 million), beating a forecast of 5.08
billion.

The company, which added 34 clients in the June quarter,
said it expects full-year margins to improve by about 50 basis
points, despite an impact of about 3-3.5 percent on margins in
the September quarter from wage increases.

India's software and back-office services export growth
will slow to 21-24 percent in 2008/09 from 29 percent a year
ago, lobby group National Association of Software and Service
Companies said this month.
($1=42.8 rupees)
(Additional reporting by Narayanan Somasundaram; Writing by
Rina Chandran; Editing by Jennifer Tan)