HCL GROUP: Balancing Act

	HCL Insys' software and BPO businesses were hived off to HCL Tech, which now handles all services exports Domestic telecom and office automation business moved from HCLI to its subsidiary to HCL Infinet In an all-cash $105.3 mn deal, HCL Tech divests stake in HCL Perot System HCLT customer base increased 23% to 454, including 61 Fortune 500 companies and 104 "over $1 mn" clients HCL Insys became the first PC vendor in India to cross the 100k PC milestone The big growth impact came from Nokia distribution (not included here)

Group Revenues The HCL Group	Shiv Nadar Chairman & CEO, HCL Tech
	S Raman
	President & COO, HCL Tech
	TS Purushothaman
	COO, HCL Infosystems
	Vineet Nayar
	CEO, HCL Comnet
	V Ramakrishna
	CEO, DSL Software
	Ranjit Narasimhan
	COO, HCL Tech BPO Services
	Paul Lanham
	CEO, HCL Jones
	Mike Barbakoff
	Corporate VP - Retail
	Daniel Morris
	Corporate VP - Insurance
	M N Divakar
	Corporate VP - Semiconductors
	V S Sriram
	VP - Banking
	Ajai Chowdhry Chairman and CEO, HCL Insys
	JV Ramamurthy
	President, HCL Infinet

Turn on a dime". Few large corporations can claim to do that. Those that
do, survive, change rapidly, adapt, move on. However old and large the HCL
companies may be, their chiefs Shiv Nadar and Ajai Chowdhry have shown that they
can move quickly-with the market.

In a booming wireless market, a quiet but quick rapid gearshift. Suddenly, we
find IT major HCLI has become India's top phone distribution company. Last
year, well over half of its revenues were from Nokia handset distribution, a
business that HCL managed to change significantly, including squeezing
unprecedented margins from top-tier distribution.

Or, take the "group". It isn't very clearly defined on paper. HCL
Infosystems (HCLI) and HCL Tech (HCLT) are linked by their common origin, and
Nadar's person holdings in both (over 50 percent, through holding companies
HCL Corp, HCL Holdings and other entities). Last year, both adapted
significantly to "fit each other" better.

HCLI decided to hive off software development and export business (the
Professional Services Organization) with HCLT. HCLI's small BPO business went
to HCLT's eServe subsidiary. Basically, all exports moved to HCLT. So did all
domestic services, barring hardware-related services. HCLI will be the sales arm
in the domestic market.

HCLI also moved its OA (office automation) division to HCL Infinet, its
networking subsidiary. There are now thus two focused business units: HCLI
itself will concentrate on the IT products, solutions and related services; and
Infinet will distribute Nokia handsets, and related communication and imaging
products.

HCLT divested its stake in HCL Perot Systems, its former 50:50 JV with Perot
System Corp, for $105 mn in an all cash deal. This follows the long trouble that
cropped up in November 2002 over management control. After it seemed that the
dust had finally settled, HCL sold out, making it Perot Systems India.

Drawing the Line

Up ahead, the realignments demarcate the two companies' roles more
clearly. While HCLT and its subsidiaries would be the group's global face and
deliver almost all services, HCLI would focus mostly on domestic product and
services sales.

On paper, both companies can hawk each other's offerings in their
respective geographies. In reality, HCLT is unlikely to front-end hardware sales
for HCLI. But HCLI's services offering is strengthened as it can offer SI and
application expertise too, while it focuses mainly on reselling and
distribution.

HCLT decided to step up focus on key verticals-banking, insurance, retail
and consumer, semi-conductors, aerospace, automotives, life sciences and
petroleum sectors. It strengthened its presence in the BPO and infrastructure
management areas-with a revenue stream well balanced between application
services, tech development, software product engineering, infrastructure
services and BPO.

And for a "global perspective", HCLT inducted several global
professionals into the team, including Mike Barbakoff (ex-CSC) for its retail
vertical, and Daniel Morris (ex-Accenture) and Stuart Drew (ex-Deloitte) for the
insurance vertical. The others are old hands: Vineet Nayar, CEO of HCL Comnet,
which is doing some pioneering work in remote infrastructure management; Ranjit
Narasimhan, COO of HCLT BPO Services and TS Purushothaman as COO, HCLI; and S
Raman, president and COO of HCLT

It also expanded in the Europe and Asia markets with good results, bringing
US contributions down to a more balanced 66% of revenues, Europe up to 24%, and
Asia Pacific making up the rest. Growth was a healthy 28%, after a 3% dip last
year.

Homeward Bound and Committed

While it took its time to come back to focusing fully on the domestic
market, it's now "fully committed". It's the PC market-leader, and
often the price leader; it was among the first to pass on the excise duty cut
benefits to buyers. All this helped achieve a 67% jump in PC numbers, though
with a 21% value growth thanks to price drops. Aggressive pricing also took its
toll on topline growth, down from 17% to 10%.

Nevertheless, the year saw HCLI become the first vendor in the Indian PC
market to cross the 100k desktop milestone, during JFM 2004. Analysts say HCLI
will continue aggressive pricing and high growth in PC numbers, and its
increased focus after hiving off the software services business will help.

Shifting Gears

HCLI subsidiary HCL Infinet ended the year with a massive 188% growth, thanks to
the new Nokia business under its fold, and completely flipping HCLI's
IT-to-OA/telecom ration from 62:38 to 39:61. And the Nokia business also meant
that HCL Infinet's revenue, which is higher than HCLT's topline, helped push
up growth for the group total to 40%; remove the OA/handsets business, as we
have done, and growth drops to 5%, after removing Perot! Clearly, the Nokia
business has made a big difference for the HCL group. HCLI also includes the
little known HCL Peripherals Ltd, the south-based manufacturer of kiosks,
monitors, think clients and other products.

An area of concern for the group is the 69% manpower growth in HCLT. Despite
taking into account the 1,161 people that came in from HCLI's software
business, the 56% growth to 13,622 will result in performance issues if volume
growth doesn't follow.

Shiv Nadar has opted out of the HCLI board (though he and his family
continues to hold over 50% of HCLI stock). Ajai remains on HCLT's board,
however. And the two have shown that just a close personal link at the top can
help uncover synergies, efficiencies and fitment quicker, to help a large group
turn on a dime and park on a nickel.

Shubhendu Parth