Corporate: Wipro's Peripheral Vision Re-visited

RESTRUCTURING
Wipro's Peripheral Vision Re-visited

Premji's hive-off of Wipro's peripherals unit stems from an old imperative: need to get aggressive in new tech areas.

By Dilip Maitra

In February last year, Azim Hashim Premji created history of sorts when the market capitalisation of Wipro Ltd., the diversified Rs 2,373-crore company he heads, touched Rs 2,24,500 crore, making it India's most valuable company. But, more importantly, it also made Premji the richest Indian. The prime reason for that-and a well-known one at that-is the fact that Premji owns a whopping 75 per cent of Wipro Ltd. Another well-known fact: Premji's penchant for maintaining a high shareholding in his company.

That's precisely why it took many by surprise when, on July 16, Premji announced that he was demerging Wipro's peripherals division, which assembles and markets computer printers, into a separate company named Wipro ePeripherals. But that's not what raised the eyebrows in Corporate India. The stunner was the announcement that 61 per cent of ePeripherals' equity would be offered to the group's employees, while parent Wipro would hold the remaining 39 per cent. Never before has any Indian promoter ever given away the majority stake in a profit-making prosperous company. If Wipro's market-cap hit dizzy heights to create history in February, Premji was now creating history of another kind. Says A. Sudhakar, 49, Director (Human Resources), Ernst & Young: ''Promoters in the past gave away sick and loss-making companies to employees mainly in order to get rid of them. What Premji has done is absolutely revolutionary.''

The real reasons

But what made Premji, who has always been loath to dilute his stake in Wipro (whether it is in favour of its employees or general investors), suddenly do such a thing? The official explanation is predictable. Says Premji, 54: '' The restructuring is in line with Wipro's approach to encourage entrepreneurial talent in the company to create value for shareholders.'' Seconds Ram Agarwal, 53, CEO and Managing Director, Wipro ePeripherals: ''We thought instead of going for private placements, it's better to offer the employees a chance to pick up a part of a profit-making company. The response has been overwhelming.''

But the real reasons for a hive-off could, well, be a bit different. First, take a quick look at Wipro's peripherals business. Set up 15 years ago, the peripherals division assembles and sells printers that go with computers and data-storage devices. Last year, the peripherals' turnover pole-vaulted 50 per cent to touch Rs 250 crore, earning a pre-tax profit of Rs 10 crore and return on capital employed of a superlative 40 per cent. These are hardly numbers that would call for hiving off the division, right?

Perhaps. But Premji's concerns about the peripherals business isn't at all about the current numbers. It's about future prospects. Tucked away into a corner of Wipro's hardware businesses, the peripherals division has been like a neglected child with most of the management attention focused on Wipro's computers business, which contributes 70 per cent of the Rs 825-crore hardware business.

And although the peripherals business has its own design and development facility-based on the skills its acquired from its erstwhile tie-up with Seiko-Epson Corp. of Japan-for printers, in recent years, it has been a laggard in terms of technology. While multinational players like Hewlett Packard (hp), Xerox, Epson, and Canon, powered by their global R&D, keep launching new inkjet and laser printers, Wipro flogs its reliable old horse, the dot-matrix printer, sales of which still tot up to 75 per cent of its printer business. Although dot-matrix printers form the largest segment, accounting for 45 per cent of the Rs 820-crore printer market, Wipro can ill afford to ignore new technologies.

In fact, just three years back, dot-matrix printers held a vice-like 75 per cent share of the printer market; today, that is down to 45 per cent. Clearly, the demand for new generation printers is growing faster. Says a senior marketing official of a multinational peripherals major: ''In half-a-decade, Wipro will become extinct if it does not become aggressive in new technology areas.'' That's something Premji and the Wipro brass know too. And spinning off the business is a precursor for a financial alliance with a major global player in printers. Says Agarwal: ''We are currently talking to a couple of strategic investors who have shown interest in the company.''

Looking for partners

Wipro's choices are limited. The five major global players-Hewlett Packard, Xerox, Canon, Epson, and Lexmark-that control nearly 70 per cent of the world's printer market are already present in India. Among them hp and Xerox have their own facilities and are unlikely to tie up with any local company. Lexmark has a tie up with TVSE and may continue with them. That leaves Canon and Epson, which are operating mainly in the retail market. Unlike hp, Xerox, and Lexmark, which have the full range of printers (dot-matrix, inkjet, and laser), Canon and Epson are mainly focused on inkjet printers, although they have launched laser printers too. They are yet to introduce laser in the Indian market. Among the five, therefore, Wipro can look for a tie-up only with Canon or Epson because they are still small and are looking for large marketshares. For such aspirants, Wipro ePeripherals can provide an edge because, not only is it large and profitable, it also has a strong distribution network, an assembly unit at Mysore, and marketing deals with most OEMs.

For Premji, who has been perfectly comfortable running a smorgasbord of businesses at Wipro-from computer hardware to electric lamps, soaps, and fluid power equipment-unleashing the peripherals business is a market-dictated decision. Because, without a strategic partner, Wipro's peripherals have a limited future. For the other businesses, where Wipro is rather well-entrenched, the same restructuring formula may not hold true. In fact, one insight into Premji's approach towards diversification is offered by his current efforts to list his company on, not the tech-laden NASDAQ but the more egalitarian New York Stock Exchange. Could that mean Wipro will remain widely diversified for some time to come?

Issue Contents Write to us Subscriptions Syndication