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With offshore product development maturing as a trend, Aztec is making a mark for itself in this space even as its Disha acquisition further bolsters its fortunes

Notwithstanding the frenetic debates surrounding it, the outsourcing paradigm only seems to mature and strengthen as time passes by. And whatever new wave emerges in this domain, India seems to remain at its epicenter. Therefore, it does not come as a surprise that offshore product development (OPD), the new poster boy of the outsourcing world, too has found several interested Indian takers. Aztec Software, Symphony Services, Aditi Technologies, Aspire Systems, Persistent Technologies-Indian companies seem to zealously embrace this new trend wherein software companies are outsourcing chunks of their product development functions to specialist partners and are making greater efforts towards marketing and branding their products.

“This is just the beginning of a new era of software product development,” says V Chandrasekaran, MD and CEO, Aztec Software. He would know: since its inception in 1995, Aztec has till date executed more than 50 OPD projects with globally known software companies such as Microsoft, Cadence, IBM, JD Edwards, Novell and many more. Though currently India has very few software products in the market to claim as its own, the IT industry here could probably take comfort from the fact that specialist firms like Aztec are slowly beginning to play a critical role in the new product releases, in the middleware and back-end infrastructure and applications of global firms.

In fact, this Bangalore-based company, one of the biggest 'pureplay' OPD companies in the world, has seen its quarterly revenues rising at an average of around 25% q-o-q for the last two years. Result: After two relatively flat years in 2002-03 and 2003-04, Aztec revenues jumped by 139% to Rs 98 crore in 2004-05. The growth has continued in 2005-06: With the first three quarters already contributing more than Rs 142 crore, Aztec expects to close the year with around Rs 200 crore in revenues. And primarily the twin pillars of OPD and testing services have supported this substantial growth.

	Feathers in the Aztec Cap
	Deloitte Technology Fast 50 India, 2005 Awards- Aztec was named in the Deloitte Technology Fast 50 India as one of the top 50 fastest growing technology companies in India. Golden Peacock National Training Award-2005- Aztec won the Golden Peacock Award for Training, a prestigious nationwide award. The Institute of Directors bestowed the honor in recognition of the quality of internal training services and processes employed. Software Magazine “Software 500” Ranking- Ranked 339 by US based Software Magazine in the annual listing of  “Software 500” Besides, Aztec was the only company categorized as a software product-engineering specialist by Software Magazine.
"This is just the beginning of a new era of software product development"                                                               -V Chandrasekaran, MD and CEO, Aztec Software

The biggest feather in Aztec's OPD cap has been its relationship with Microsoft-it has been engaged in development work on its database products. In addition, in recent years it has handled several phases of the software product development lifecycle for vendors like Hyperion and Dendrite. Chandrasekaran informs that in OPD, the company has been successful in leveraging its competence in core technologies like data management, integration and Web services, mobile applications as well as security and identity management.

And it has added to this portfolio in 2005, wireless networking and embedded devices technology. The results have been quick in coming: In four months of commencing services for the wireless domain, the first client has been signed up during Q3'06. In fact, with the addition of 10 new clients during this quarter, the client roster now includes 68 active clients. The future too looks bright. In the words of Chandrasekaran: “With the Indian IT industry witnessing its third wave with OPD, Aztec as a pioneer of the offshore delivery model in this segment is well positioned to take advantage of the opportunities going forward.”

Though OPD has been Aztec's biggest claim to fame till date, its foray into testing services bolstered by the acquisition of Pune-based Disha Technologies in 2005 for $12 mn, has opened up new avenues for the company. On the testing side too, Microsoft is a significant client even as Aztec has obtained expertise in test strategy formulation, scooping, planning, execution, automation and reporting. The Aztec-Disha combined entity has helped the company leverage its strengths in the ISV market and its expertise in the QA services market.

In fact, the expertise on testing services obtained through the Disha acquisition perfectly complements Aztec's OPD skillsets. “The Disha acquisition has helped us emerge as a complete lifecycle services provider for our OPD clients,” informs Chandrasekaran. The company now offers services that include development, testing, professional services and sustenance engineering covering the entire product engineering lifecycle.

With OPD expected to gain further traction, Aztec looks to be on a strong wicket in the near future. However, financial analyst Krishnan Thiagarajan warns that the risks for Aztec stem from high client concentration, threat of customers moving product-engineering services in-house and a slower-than-anticipated integration of the Disha acquisition. The top five and 10 clients of Aztec contributed 54% and 81% of revenues in the latest quarter, marginally lower than the previous quarter. Though in line with some of its mid-sized/small-cap peers, it exposes the company to risks arising from R&D spending slowdown by ISVs in different stages of the cycle.

Such apprehensions about slowdown in OPD, however, are not intimidating the company. Instead, as part of the plans to diversify into segments complementary to its existing service offerings in OPD, Aztec is even looking to acquire small software firms. It has identified allied areas in storage management and embedded systems where it plans to acquire expertise either through the inorganic or the JV route. And like Disha, these are also likely to be India-based services companies.

Rajneesh De  
rajneeshd@cybermedia.co.in

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