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Summary

Indian outsourcer HCL Technologies finished its fiscal year (year ended July 31) with revenues of $5.9bn, a growth rate of 11% year-on-year (YoY), which can be termed decent by industry standards. However, the stellar performance of its Engineering and R&D Services (ERS) business, which grew 26% YoY to $1bn, and its Infrastructure Services arm, which grew 25% YoY to more than $2bn, has to be noted.

Early investments in IoT and deep experience in ERS starting to pay rich dividends

The strong growth in these segments makes HCL the largest offshore engineering services provider and among one of the vendors best positioned to capitalize on the wave of digitization and Internet of Things (IoT). The impressive performance of HCL's engineering services business can be attributed to the growing demand for engineering capabilities from verticals such as telecom and networking, industrial manufacturing, medical devices, and independent software vendors (ISV), as well as the investments HCL has been making in growing these capabilities.

The increasing convergence of technology, automation, and the growing interest in industrial IoT is driving much of this demand from the telecom and manufacturing segments, while medical device manufacturers are looking beyond hospitals to provide tools to patients for managing their well-being, for instance, wearable patient-monitoring systems such as Preventice's BodyGuardian Remote Monitoring System or Avery Dennison's Metria Wearable Technology.

Ovum recently visited HCL's ERS labs and innovation centers and believes that the investments HCL has made around exploiting IoT for providing structured data analyses for its industrial client base will continue to drive growth in the areas of ERS and digitalization of infrastructure. The partnerships that HCL has established with leading universities and joint incubation centers with key product companies (such as IBM, Splunk, EMC, Tele2, and Hitachi) across hardware, software, and communication layers will be critical in the near term as these clients increasingly turn to trusted suppliers and partners to enable, facilitate, and drive transformation in their businesses.

To further leverage the strong market positioning and substantial head start it enjoys in the ERS space HCL needs to ensure greater collaboration between ERS and other parts of the business to build differentiation. Simultaneously, HCL's market push around its digital offerings needs to gather speed if it is to keep pace with rivals who are strongly pushing messaging around a core of automation, convergence of technologies, transformation, and IP-led services as the "next big thing."

Appendix

Further reading

Sourcing Evolution and a Product-oriented Approach Needed to Build Adaptive Businesses, IT0019-003451 (June 2015)

The Importance of Legacy Modernization in the Digital Transformation Journey, IT0019-003446 (May 2015)

The Market for Outsourced Software Product Development Services Heats Up, IT0019-003429 (March 2015)

Six Steps to Digital Transformation, IT0019-003405 (January 2015)

Embedded Software QA, Testing, and Security, IT0022-000267 (December 2014)

Author

Hansa Iyengar, Analyst, IT Services

hansa.iyengar@ovum.com

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