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Summary

In an announcement last week, HCL Technologies (HCL) reported that it expects its fiscal Q1 revenue growth to be below par. The vendor continues to be plagued by problems associated with currency fluctuations, "client issues," and a slowdown in its infrastructure management services (IMS) business as a fallout of some of the riskier engagements it has accumulated over the last few years.

HCL needs to revisit its strategy to sustain growth and margins

This announcement marks the third consecutive downgrade in guidance issued by HCL in as many quarters and is symptomatic of the fact that HCL needs to revisit its strategy. While rivals continue to gain momentum on the back of investments being made across their services portfolios, HCL seems to have done little to shore up its weak application services business, focusing too heavily on its IMS business at the cost of other service lines. IMS, which accounts for over a third of total revenue, has reached the point where it is unlikely it will achieve the double-digit growth it has historically attained (as cloud usage grows, traditional infrastructure management will continue to fall off). In addition, its risk profile may increase as some of the riskier commitments it made over the past few years begin to act up. Moreover, HCL has yet to present a strong vision that ties its various service arms into one cohesive plotline when it comes to its approach to the whole "digital transformation" theme.

Though the vendor has the requisite combination of consulting, engineering, and traditional services offerings, it has been unable to weave these into a successful go-to-market strategy and messaging. HCL continues to enjoy a strong market position in the IMS and engineering services space and needs to bolster these by making the right investments in growing its capabilities in the applications space. However, it is essential that HCL integrate as quickly and cleanly as possible and avoid the mistakes of acquisitions made previously, such as with Axon, and work on improving staff retention. HCL will need to build a full-bodied proposition around a core of advisory, automation, transformation, and IP-led services and enhance its applications capabilities and offerings.

Appendix

Further reading

India IT Services Vendor Quarterly, 2Q15, IT0019-003487 (August 2015)

"HCL becomes the largest offshore engineering services provider," IT0019-003486 (August 2015)

Author

Hansa Iyengar, Analyst, IT Services

hansa.iyengar@ovum.com

Jens Butler, Principal Analyst, IT Services

jens.butler@ovum.com

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