IT Firms Jittery Over Credit Crunch Fallout

SAN FRANCISCO -- Information technology firms found a cash cow in financial services companies with increasingly sophisticated communications and computer services needs.

But now, these same tech companies are fretting as investment banks, mortgage lenders and insurers ride out turmoil in the credit markets.

On Friday, tech services firm WNS (WNS Quote - Cramer on WNS - Stock Picks) slashed its financial target because mortgage originator First Magnus Financial canceled its voice systems support and transactions processing contracts.

WNS said its annual pretax profit before will be $26 million lower than expected. The company had expected net income between $41 million and $43 million.

In a conference call, Chief Executive Neeraj Bhargava said WNS had had "very little indication" that problems in the mortgage markets were so severe.

Bhargava is now "taking a much harder look" at his other mortgage clients like IndyMac Bancorp (IMB Quote - Cramer on IMB - Stock Picks) and basing financial forecasts on the possibility that they could terminate contracts or go bankrupt.

WNS' shares fell more than 16% Friday on the news. In recent trading, the stock was off nearly another 5% to $19.34.

An IT firm's vulnerability to deteriorating credit conditions depends on how much its revenue depends on financial services customers. The problems are largely limited to contracts with mortgage companies that are active in the subprime market, and few brand-name outsourcing companies have material exposure to subprime.

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