HCL Technologies eyes 20% revenue from digital play by 2020

HCL Technologies, India's fourth largest software services company, expects digital, cloud, analytics, automation and internet of things (IoT) to grow faster than the traditional business segments, accounting for up to 20 per cent of revenues in next three to four years, from current five per cent.
 

At present, for the $6.2 billion company, the tradition core businesses including IMS (infrastructure management services), ERS (Engineering and research & development services) and Application services account for about 95 per cent of the revenues.
 

"For our tradition growth businesses, infrastructure, ERS, application services, which we refer to as Mode one businesses, growth is very strong and we expect to grow within our guidance range. The new areas we are kind of pivoting towards, we call them Mode two businesses. These include beyond digital, IoT, cyber security, cloud and automation," Matt Preschern, executive vice president and chief marketing officer, told Business Standard. 

"These areas today account for less than 5 per cent of our revenue, but we are going to see them accelerate. We think these are going to grow significantly faster than our traditional ones and probably within next 3 to 4 years, we would assume that they would account for 15 per cent of our revenue," he said. For TCS, the country's largest software exports, revenues from digital contributed 15.9 per cent to the total in the first quarter of the fiscal. 
 

According to Sanchit Gogia, Chief Analyst & CEO of Greyhound Research, HCL has made quite a noise about its digital business, but on the ground, it has been week as compared to larger competitors like TCS and Infosys. At present, the digital revenues for IT services firm broadly range between 10 to 15 per cent, he said.
 

Digital contributed to 15.9 per cent to the total revenue for TCS in the first fiscal of FY 17.
 

"By 2020, If we can grow our existing businesses within the revenue guidance and on the top of that grow mode two businesses, that growth will double," Preschern said. "The reason why Mode two business is so important to us isbecause that is what clients are asking for."
 

Preschern said the company has hired over 100 people from global, reputable companies over last 12 to 18 months for it beyond digital business, which provides end to end solution to help companies become digital.
 

As enterprises look to transition to cloud, along with digital, HCL is building its cloud capability.
 

"We actually have a very strong cloud capability. Certainly, there is some cannibalization into our traditional infrastructure business, but these are our growth areas," he said.
 

On cyber security business, the company has seen a good uptick and may spin it off into a separate business unit.
 

"We today have probably pretty sizable security business primarily within our infrastructure business, and I think we are going to possibly run as a separate business altogether," he said.
 

To tap into the opportunity in the automation space, HCL is building a framework with over 20 partners including IBM Watson and Cisco.
 

"The other part where we feel very strong is space of automation and our Dry Ice (automation) platform would be a huge differentiator. We have over 200 scientists, and we have partnered with IBM Watson and Cisco," he said." It is all put together under one framework , Dry Ice, which is build out with the whole range of partners across the ecosystem."
 

"Over the last 12 month, for about $2 billion deals, there was some level of automation embedded," he added.
 

On M&A strategy, Preschern said the company takes a balanced approach between partnerships and acquisitions. It has also invested in few of its partners.
 

"Our notion is usually the right balance between partnerships with services company and acquisitions," he said. 

"Last year Volvo IT (acquisition)is a great example. On the one hand, 2500 joined us from Volvo, on the other, we also acquire Volvo IT arm and by extension its 40 Volvo customers. But if you look at Aegon, it has been our customer for 10 years, and it partnered with us last year to built an innovation lab in Hague where we are doing design thinking and digital efforts," he added.