Sonata Software drops two ranks in India IT industry as reseller business from Microsoft shrinks

This type of software reseller business accounted for more than 60% of Sonata’s revenues. Microsoft, like other major software companies, previously sold most of its licenses through third parties such as Sonata. It now aims to sell directly to large customers. Although this has happened in the past, Sonata’s management said this was a first in Asia.

based in bengaluru As a result of the contraction in its sales figure, Sonata is now the country’s thirteenth largest IT outsourcing provider after losing out to L&T Technology Services Ltd (LTTS) and Firstsource Solutions Ltd following a weak July-September 2025 period.

Sonata reported revenue of $242.8 million for the quarter on Friday, down 30% sequentially. Much of this decline was due to reduced revenue from domestic businesses, primarily from the sale of software licenses.

In comparison, LTTS and Firstsource (the latter was the latest entrant into India IT’s one-billion club) finished the second quarter with revenues of $337 million and $265 million, respectively.

fourth rejig The hierarchical ranking of Indian IT in a year may create fear in the minds of investors who are counting the risks that macroeconomic uncertainties and automation tools will reduce jobs in the country’s $283 billion IT industry.

While the second quarter has traditionally been a seasonally weak quarter for Sonata due to fewer license sales, the current decline goes beyond seasonal weaknesses.

First of all, the company’s revenue fell 6.3% year over year, the lowest level in at least three years. Even last quarter’s sequential revenue decline was more than double the previous year. Sonata finished the second quarter of last fiscal year with revenue of $259 million, down 14.5% from the previous quarter.

Microsoft goes direct

Mint It was first reported on July 3 that Microsoft’s approach to selling its licenses directly could affect Sonata, which generates approximately $500 million in revenue from Microsoft.

At least one analyst said Microsoft’s restructuring has accelerated this impact.

“The annual (revenue) decline reflects more than seasonal weakness. Microsoft’s restructuring likely accelerated the impact, and Sonata’s domestic resale revenues have historically been more volatile than its international IT services business,” said Phil Fersht, CEO of HFS Research.

Sonata makes about 40% of its business by managing the back-end IT infrastructure of foreign companies, and the rest by selling software product licenses to companies. incoming job Microsoft accounts for most of this business. Sonata also sells licenses for Google and Oracle software.

On June 26, Sonata’s general manager Samir Dhir stated: Mint He said Microsoft’s new approach is a threat to the company. Company management noted that Microsoft experienced a further lack of clarity in the September quarter.

“As of right now, although they (Microsoft) haven’t given anything in writing, our guess is that they are trying to make direct agreements with a limited number of very, very large accounts or large customers around the world… So there may be a few in that list that will come into India and may fall into our customer basket as well,” Jagannathan CN, Sonata’s chief financial officer, said during a post-earnings analyst call on November 14.

During MintIn a meeting with company management in June, Dhir noted that Microsoft’s move to sell licenses directly could generate “a quarter or two increase here and there.”

However, last week the CFO pointed out that there was some uncertainty on this issue because Sonata had not yet heard from Microsoft.

“We have to wait and see how things develop and to what extent (Microsoft) can move forward, and we’re not in a position to comment on that because frankly we don’t know exactly what their future plans are,” Jagannathan said during the call.

Don’t turn the ship

For now, Sonata aims to diversify the customer base to which it sells software licenses.

However, this may take time and there may be pressure at the top. “Microsoft’s decision to sell licenses directly to its largest Indian enterprise customers moves intermediaries like Sonata away from high-volume, low-margin resale activities,” said HFS’s Fersht.

Sonata does not charge revenue from its top customers for its overall business.

A second analyst said this did not bode well for Sonata.

“They need to focus on value-added services and adjacent services. Any Var (value-added reseller) business model is not sustainable in the long term,” said Peter Bendor-Samuel, founder of Everest Group.

Value-added resellers like Sonata customize and sell Microsoft software to customers and may even modify them further.

Fersht added that Sonata now faces an existential crisis.

“Microsoft expert services firms like Sonata face an existential question: What is the value proposition when the software vendor directly owns the customer relationship? The answer can’t be, ‘We help you buy Microsoft products.’ It should be, ‘We help you get results from Microsoft products through services, integration and expertise that Microsoft can’t provide,'” Fersht said.

Sonata’s shares have lost 38.16 percent of their value since the beginning of the year. ₹370.85 as of Monday. Emails sent to Sonata Software and Microsoft on Monday went unanswered.

Both analysts cited above said the company should expand its global IP-focused offerings and double down on analytics and AI services, which would help the company move away from licensing volatility.