Sonata Software Ltd., which entered Indians last year, was a $1 billion revenue club and recently said it is likely to be less than expected revenues with its “big customer” between January and March (2024-25).
“…We would like to inform you that our largest client’s revenue estimate for Q4 2024-25 may be lower than expected, thus bringing international business revenue in the quarter below the revenue previously envisioned in previous analyst/investor appeals,” Sonata said in its April 16 stock exchange filing.
During Sonata's third-quarter postal call with analysts and analysts in February, management expects revenue to drop 3.5% in the March quarter, attributed it to the company's largest customer accounts in the technology, media and telecommunications sectors.
Four people who are in line with the knowledge of the matter said that Sonata's largest customer is Microsoft Corp., which has annual revenue of more than $100 million.
Sonata's recent update to the stock exchange is a rare instance of an Indian IT company calling for lower business from top customers. The company did not disclose whether it mentioned Microsoft in its exchange filings or on its post-graduation call in February, or for a specific reason that its highest customer rate fell.
However, industry experts have pinned this to Microsoft's reliance on its own AI capabilities increasingly rely on handling its outsourcing tasks.
If Microsoft's AI ambitions are expected to damage Sonata's revenue, that's also the focus of other top IT outsourcing companies in India, as they all count the U.S. tech giants among their top customers.
Microsoft ended its previous fiscal year with $245 billion in revenue after the July-June financial calendar. In other words, Microsoft is almost four times that of Accenture Plc, the world's largest IT services company.
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Clarion phone for sonata
Sonata's domestic operations, including resale product licenses, account for 70% of its revenue. Outsourcing engineers to customers is 30% remaining.
According to an analyst, two-thirds of Sonata's $1.04 billion revenue in 2023-24 came from Microsoft. A large portion of this revenue from Microsoft comes from selling product licenses from U.S. companies to domestic customers, while the rest comes from outsourcing engineers to Microsoft.
Sonata's Clarion phone calls are when talking to customers and starting to bake with Genai's efficiency. While Indian bosses are confident about the increased demand brought by AI Gen IS, analysts hope AI consumption is mostly related to customer support, application maintenance and management.
The sonata refused to answer the Mint questionnaire, citing a period of regulatory silence.
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Microsoft Models
Local IT services companies work with Microsoft in two main ways.
One of them is the system integrator of Microsoft software products. If Ice Cream Chain wants to use Microsoft's software to manage its sales and financing, you can purchase the software from an IT outsourcing machine, such as Sonata Software. Not only will Sonata let ice cream companies use Microsoft's software, it can also fit the software into its computer, thus earning extra money.
Second, IT service providers send engineers to Microsoft to manage their software products. These engineers ensure that Microsoft's software's functionality and backend requirements were sold to companies such as Ice Cream Chain.
“Microsoft outsources a large amount of product development to Indian IT services companies,” said Pramod Gubbi, founder of Marcellus Investment Manager, Mumbai investment management company. “Pramod Gubbi, founder of Marcellus Investment Management, Mumbai investment management company,” said Pramod Gubbi, founder of Marcellus Investment Management, Mumbai investment management company, ” “It is always necessary to improve functionally and bug fixes, and many of this commodified low-end product maintenance work requires outsourcing.” ”
According to industry experts, it is Microsoft's renegotiation with Microsoft.
“What we’re seeing is the impact of AI Gen (Generated AI) on IT services companies. Microsoft is now billing less from IT outsourcing because AI tools are used to automate the work these engineers do,” Gubbi said. “Even if the number of people charged is the same, Microsoft demands the productivity benefits of AI.”
Another analyst said this could affect most IT outsourcing providers in India.
“In the current market conditions, we have seen Microsoft retire with IT service partners, including leading Indian-born companies,” said Phil Fersht, CEO of Massachusetts IT consulting firm HFS Research. “Microsoft is seeking to invest more resources into its own GCC of India (Global Capacity Center) and other global support centers.”
Microsoft did not respond to queries sent by email on April 28 and May 1.
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Another affected outsourcing
Two other analysts said Ltimindtree Ltd was also affected by the re-evaluation of its business with IT outsourcing in India.
“We think even Ltimindtree has been affected. But for LTIM, only IT outsourcing has been affected,” said one of the analysts at the Mumbai brokerage firm.
Another analyst said Microsoft is Ltimindtree's largest client to earn at least $50 million in annual revenue from India's sixth largest company. The main part of Ltimindtree's business with Microsoft includes managing the IT infrastructure of the US tech giants.
Ltimindtree recently said that its productivity benefits it has transferred to “top customers” will affect its revenue in the third and fourth quarters. IT services companies pass productivity gains to customers by doing the same amount of work as fewer people, but because customers charge less engineers, they earn less.
“We bring productivity to customers, especially the highest customers … at least to stabilize, we have to stabilize again,” Ltimindtree CEO Debashis Chatterjee said on an annual revenue call with analysts on January 16.
In a call after Ltimindtree’s latest tribute on April 23, Chatterjee’s successor and CEO Venu Lambu said the benefits of productivity have been passed to the top customer by the end of March 2025.
Ltimindtree did not respond to an inquiry sent by email on Thursday.
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