Telecom software product firm Subex is gradually reducing its dependency on its biggest client British Telecom, which contributes more than 20 per cent to the company’s top line.
Even as the business it is deriving from BT is increasing in absolute terms, the revenue contribution to Subex’s annual revenue in 2008-09 might fall to 18-20 per cent this year from 21-22 per cent a year ago, Subex said. This is mainly due to faster growth of its other top-10 clients including AT&T, Telstra, Telecom Italia and Swisscom.
Subex Founder Chairman and Managing Director Subash Menon said, “This year, we will get about 18-20 per cent revenue from BT in line with our guidance. Last year, it was a little higher.
Since the other portion (non-BT business) is also growing faster, the revenue share from BT is decreasing. In absolute terms, the revenue we will get from BT will be higher than the previous financial year.”
Unlike most companies in the IT services sector, Subex is over-dependent on its top-10 clients. The top-10 clients contribute close to 85 per cent of its revenue. However, since most of the contracts in the telecom space are multi-year deals, the risk of depending too much on specific clients is mitigated to a certain extent.
BT, which is also an indirect investor in Subex through Norwest Venture Partners (NVP), provides a business of $20-23 million on an annualised basis. The business from BT is growing at 10-15 per cent every year.
Almost three years ago, when BT announced 21st Century Networks (21CN), a network upgradation project transform its legacy network with advanced network capability, Subex was also awarded with a small portion of the project. The project with an outlay of $10 billion, spans over five years and involves multiple vendors.
In spite of the global financial meltdown, the telecom service providers, who are primarily the clients of Subex, are going ahead with their expansion plans. This includes Fibre To The Cabinet (FTTC), a new project piloted by BT to provide broadband connections right up to households in the UK, involving an investment of about £5 billion.
AT&T, one of the top 10 clients of Subex is also pushing its U-verse project quite significantly. Besides, many governments are also going ahead aggressively in their telecom and broadband plans. Subex is eying significant opportunities in all these projects.
Meanwhile, as a part of its plans to focus on core software product segment, Subex is also gradually trying to reduce its dependency on software services, which contributes close to 20 per cent of its revenue at the moment. Menon said the company plans to reduce the revenue contribution from software services to less than 6 per cent in the next three years.
“The services business we do is essentially body-shopping and requires a lot more onsite activity, where the margins are as low as 6-7 per cent of EBITDA. Five years ago, 70 per cent of our revenues were coming from services. Today it is less than 20 per cent.
Our plan is to bring down the revenue contribution from services to 5-6 per cent in the next three years,” Menon added. Subex, which has a headcount of about 1,400 people, of which 250 are engaged in software services segment.
