- More IT services company showing growth in Digital business
- The digital business includes technologies cloud, mobility, cybersecurity
India’s top Information Technology (IT) services companies, even at the time of COVID-19 situation and global challenges, have reported a surge in the growth from their digital business in the quarter which ended in June which helped them significantly in maintaining buoyancy when their clients transition to Work-From-Home (WFH) culture and demand for collaboration, cloud, and cybersecurity related technologies shot up.
Even though digital is defined differently across the organization, typically practices which cover emerging technologies including mobility, cloud, Internet of Things or IoT, and cybersecurity are merged under the digital business.
Until recent times, the majority of the IT services firms reported their digital revenues separately, however, this trend is changing as digital is not becoming a part of the mainstream offerings of these firms.
Senior Director Analysts at Gartner, Dean Blackmore said, “Digital is definitely mainstream for IT services providers. Comparing digital revenues across providers can be difficult because different providers use different definitions for digital revenue,” and added that “We estimate that in 2019, non-digital IT services revenue was still around 52% of total IT spending. However, by 2023 that will drop to around 31%.”
Bengaluru based IT firm Wipro Limited has made digital so “mainstream” that the firm has done away with the separate classification for their digital business from June quarter onwards.
Bhanumurthy B M, the Chief Operating Officer (COO) of Wipro said, “We believe digital has now become a mainstream capability for us and also it has reached a scale where you don’t need to separately call it out as it has become very pervasive for us,”.
Tata Consultancy Services Limited (TCS) which is India’s largest software exporter has also stopped reporting its digital revenues from the 3rd quarter of FY20 as the lines between the digital and core activities are no longer black and white.
The Chief Information Officers (CIOs) are now looking to optimize the costs with the accelerated adoption of both public and hybrid cloud model which has driven growth in the clod revenues in this quarter said the Chief Executive Officer (CEO) and the Managing Director (MD) of TCS, Rajesh Gopinathan.
Rajesh Gopinathan said, “Our pipeline from a digital infrastructure and cloud perspective has actually been the highest in the last many quarters. A lot of the large deals that we see are coming from accelerated adoption of the core infrastructure and compute fabric transformation which is a key enabler for switching to this model at a large scale basis,” in a post-earnings call recently.
Infosys Limited, one of the few IT services firms which still continue to note its digital revenue separately, for the first quarter which ended in June, saw the revenues from digital frow 25.5% year-on-year in constant currency to $ 1.38 billion. This contributed 44.5% of the company’s total revenue.
Earlier in July, Infosys signed a big deal with an American investment management firm named Vanguard which will help to drive the digital transformation of their record-keeping services onto the cloud business platform which the IT services firm believes is an indication of strong growth momentum in digital.
Salil Parekh who is the CEO and MD of Infosys said, “The whole crisis has really accelerated the digital thinking across most large enterprises. We see a lot of demand in areas of cloud, workplace transformation, automation, and cost-efficiency,” in the Q1 earnings call.
HCL Technologies Limited in addition to its partners is also helping the customers embrace the digital transformation to emerge well prepared and stronger in the post-COVID times. The Chief Strategic Officer of HCL Technologies, Shiv Nadar said, “I am confident that, with decisive action leveraging digital momentum and sustainable business practices, we will together emerge as stronger entities,”.
However, there are analysts who believe that sharing digital revenues separately provided a better clarity though some change in reporting structure is always inevitable
A Mumbai-based IT Analyst, Harit Shah said, “Traditional services like application development and maintenance (ADM), testing and infrastructure support have been under severe pressure for long. So, the focus on digital will continue, and especially areas like cloud and customer experience will become more and more mainstream in the coming days,”.
Though the exact timeline cannot be confirmed, most of the IT services firms expect a slow recovery in the quarters to come. Infosys has projected an FY21 annual revenue growth guidance of 0-2%, while HCL Technologies expected a 1.5-2.5% growth in the three quarters to come in constant currency terms.
TCS typically does not provide revenue guidance and Wipro Ltd preferred not to guide for the next quarter due to business uncertainty they see.