Wipro Technologies, a unit of parent Wipro
Here's the deal
Wipro already faces stiff competition from rivals Accenture
Wipro's oil ambitions
With SAIC's significant domain capabilities in the areas of digital oil field, petro-technical data management, and petroleum application services, Wipro gets a chance to cater to the upstream segment as well and grab a share of the $19 billon U.S. market for upstream information technology solutions. Oil companies investing in the upstream business must also invest in associated IT services, and that's where Wipro comes in. Wipro's upstream IT business will now contribute an expected 17.5% to its energy, natural resources, and utilities business revenues, up from just 5% previously.
Fortunately, this type of work isn't entire unfamiliar to Wipro. In fact, the company has extensive experience in implementing solutions on the Microsoft platform for the larger energy and utilities industry.
A new market in a new market
Wipro has a comparatively low exposure to the U.S. market, with 55.9% of total business revenue coming from there. That's in contrast to Infosys
What does SAIC have to say?
SAIC says the sale of this asset is in sync with its plans to better focus on strategic growth areas. This includes energy segments such as smart grid, renewable energy implementation, and energy efficiency. The company feels investments in oil and gas IT services business would have diverted from its area of focus.
What do Fools say?
Wipro has been quite aggressive in making acquisitions to grow its business. Better yet, a return to higher IT spending and an improvement in the U.S. economy should trigger improved economics for the company in months and years to come. However, on the flip side, the company still trades for 21 times earnings, so growth will have to continue at a high rate if the company wants justify a higher multiple than established IT brands like IBM or Accenture.
Bibhudutta Subhasish does not own shares of any of the companies mentioned in this article. Accenture, Microsoft, and SAIC are Motley Fool Inside Value selections. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Microsoft and SAIC. Alpha Newsletter Account, LLC owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.