HCL is taking a path that is distinct from its peers
Interview: Hansa Iyengar, senior analyst-Advanced Digital Services, Ovum

For Shiv Nadar-Promoted HCL Technologies it is a ready way to bulk up its software product portfolio since it has already been developing these products for IBM and can provide a fresh lease of life to these products and its customers. As far as Big Blue is concerned, it needs to shed some ‘weight’. IBM is bleeding more cash than it is making and unless it stems the outflow, it will be in trouble, says Hansa Iyengar (in pic), senior analyst-Advanced Digital Services at Ovum, a London-based IT analyst firm.

What does this product deal mean for HCL?

HCL’s plan is to revive these products which already have an established client base, offer upgrades, cloud enable the products where possible, build a large software business of its own and leverage these tools in their services business as well. This move will allow HCL to transition customers and partners onto its letterhead.

The company is expecting incremental annual revenue of $650 mn from the deal; can it sustain this run rate?

Highly possible! All these products have a consistent client base who would love to see new life breathed into the investments they have made over the 15-20 year lifespan of the software.

With a bouquet of IBM products, HCL claims to have access to a $50 bn market opportunity. What are your comments?

This buyout puts HCL squarely into the software space (which is where it will not see competition from the services players, but from other software companies). This is a huge differentiator for HCL which is breaking away from the mould of the traditional services company. HCL will also have the opportunity to leverage these products across its services business, further strengthening its proposition in areas such as security, ecommerce and collaboration.

Will this deal impact the pecking order of Indian IT landscape?

Too early to comment on this. We will have to wait for a couple of fiscal years when HCL will begin reaping the benefits from this acquisition.

Will this acquisition of HCL bring other league players under buying pressure?

HCL is taking a path that is distinct from its peers. It is focused on driving growth through products and platforms which is its strength. I do not expect its peers to make similar product buys – the focus there would be more around the digital space – creative, agency, analytics, specialist consulting, etc. Whether they feel pressured or not will depend on how big of a threat this move by HCL poses to them.

Has shedding some product weight made IBM more agile for AI and cloud play?

IBM has placed a lot of bets on IBM Cloud and Watson being the growth engines of the future, but it continues to struggle in both the areas because a lot of its time and resources are spent tending to its legacy portfolio. By divesting these products, IBM is looking at freeing up itself to focus on growth. Whether these bets will pay off is something we need to watch out for in the long term.