HCLTech becomes latest Indian IT firm to face top client blues as Google consolidates vendors
HCL Technologies Ltd has become the latest Indian information technology service provider to be hit by shrinking orders from top clients, with Google expected to
HCL Technologies Ltd has become the latest Indian information technology service provider to be hit by shrinking orders from top clients, with Google expected to trim its IT bill as the rise of automation tools leads large companies to revisit their existing tech contracts. India’s third-largest IT services company could lose about a fourth of its annual business from Google, or up to $50 million, as the global tech company has decided to bundle that work as part of a separate deal, according to two people with knowledge of the matter. HCLTech got about $200 million annually from Google, which is one of its 10 largest accounts. The Noida-based company handles application development, engineering services and IT infrastructure-related work for Google. The loss would translate to about 0.3% of its $14.66 billion revenue and about 6% of its incremental revenue last fiscal. The company was the fastest-growing tech services firm among the top six in India. Emails sent to Google and HCLTech on 25 July went unanswered. For now, HCLTech may lose out on application development and maintenance work, one of the three arms of work it handles for Google.
The other two arms are coding-related work and integration of software products including SAP and Salesforce. “HCL was handling this application development work for the last 10 years and had around 1,000 people working on this project,” one person with knowledge of the matter said. “These employees will be deployed to other projects, and the transition will last around three months.” This full-stack application development work was part of a larger multi-million dollar deal spanning atleast three years that was awarded to IBM, Accenture and Deloitte, according to the first person. Vendor consolidation A second person said the company also lost out on about $25 million of new application development work as Google put the deal on hold for an undisclosed reason. Both people confirmed that the changes are part of a vendor consolidation drive undertaken by Marc Berson, who took over as the head of Google Internal Systems in February last year. Still, HCLTech is expected to be the fastest-growing of the country’s big six IT companies as its management expects to end the fiscal with a full-year growth of 1-4% in constant currency terms.
Constant currency does not take currency fluctuations into account. While HCLTech won a $1.14 billion workplace management contract from Mercedes-Benz in July, its contribution to revenue this fiscal will be negligible, according to the management. HCLTech is the latest in the list of companies to face growth blues from top clients. Over the past three months, Infosys lost two of its largest clients, Daimler and Mercedes-Benz, to HCLTech and Cognizant due to execution delays and low margins. Infosys had bagged a $3.2 billion, eight-year IT transformation deal with Daimler in December 2020. Daimler had split into Mercedes-Benz Group and Daimler Trucks in December 2021, but both units retained Infosys for IT services work. Wipro, the fourth-largest Indian IT company, lost $100 million, or almost 1% of its full-year revenue, from New York-based Estée Lauder, as part of a vendor consolidation drive by the cosmetics company. In February 2021, Wipro bagged a $500 million IT modernization deal spanning five years with Estée Lauder. Also Read | Coforge races ahead in Q1, Mphasis treads carefully Smaller rivals While large tech services firms faced challenges from their top accounts, their smaller peers getting $1 billion-2 billion in annual revenue were not insulated.
The BriefWire