HCL GROUP: The Change Agents

HCL E-serve bagged $160-mn order from British Telecom Nokia dealership pumped up HCL Insys revenues, showing 466% growth, albeit on a small base Announced plans to merge HCL Insys’ software division with HCL Tech

Group Revenues The HCL Group The Money Came From
Shiv Nadar Chairman, President & CEO HCL Technologies S Raman COO, HCL Technologies
Ajai Chowdhry Chairman and CEO HCL Infosystems TS Purushothaman COO, HCL Infosystems
JV Ramamurthy President HCL Infinet
Vineet Nayyar CEO, HCL Perot Systems Vineet Nayar President & CEO, HCL Comnet Sujit Baksi CEO, HCL Tech BPO Services Sanjay Kalra CEO, DSL Software Paul Lanham CEO, HCL Jones Venkat Daravapalli CEO, HCL Tech Illinois Rajiv Shesh President, HCL Tech (Mass) Ken Coppins CEO, HCL Answerthink
1975	Shiv Nadar and five colleagues start Microcomp
1976	HCL promoted with startup capital of Rs 1.87 lakh
1980	First overseas venture, Far East Computers, set up in Singapore
1981	NIIT, India’s first private sector IT education institution, set up
1985	HCL America established
1991	HCL HP is born
1994	HCL Technologies formed as a separate software company
1996	Joint venture with James Martin and Perot Systems Corporation
1999	IPO by HCL Technologies
2001	Deutsche Software acquired. Ireland BPO firm Apollo Contact Centre is bought out HCL Enterprise Solutions formed as a joint venture with Computech Corporation, Inc, USA
2002	Announced the proposed merger of HCL Infosystems’ software business with HCL Technologies

It was yet another year of restructuring, strategic alliances and client
rationalization for one of India’s oldest technology groups. With a finger in
every pie–from hardware infrastructure to high-end R&D and software
applications to BPO–there was a fair mix of wins and losses for this giant,
resulting in the final tally of 14% growth.

"We have always been strong in the domestic segment. Over the years, we
have consciously expanded international reach and reduced dependence on the
domestic market," said HCL Infosystems chairman and CEO Ajai Chowdhry. Over
the years, HCL Infosystems has evolved from selling boxes to system integrator
and IT and consultancy services. HCL Technologies has moved up to concentrate on
high-end value-added services and on an offshore model.

One of the country’s oldest corporates to dabble in information technology,
HCL was ranked #1 in the 1999-2000 and 2000-01 DQ Top 20 Giants listings.

So what is HCL today? HCL Infosystems (HCLI), the group’s hardware
manufacturing, systems integration and distribution arm, as well as the country’s
leading manufacturer of PCs with subsidiaries like HCL Infinet (ISP). HCL Perot
is a 50:50 joint venture with Perot Systems Corporation and HCL Holdings Gmbh, a
subsidiary of HCL Technologies started in 1996. Currently, HCLT has categorized
its businesses under three heads–software services, IT-enabled services and
networking services. The organic entity consists of HCLT (the core entity),
while the inorganic head comprises joint ventures such as Deutsche Software, HCL
Enterprise Solutions and HCLT Jones, among others. The IT-enabled services head
consists of HCL E-Serve and HCL Technologies NI. The networking services head
consists of HCL Comnet.

In December 2002, HCL Infosystems announced the proposed demerger of its
software development business (Softex), to be subsequently merged with HCLT. A
court order to this effect is pending. Once approved by the court, revenues from
Softex will be part of HCLT, with effect from January 2003.

In another significant transaction, the technical help-desk business of HCL
Infinet, a subsidiary of HCLI, has been acquired by HCLT’s BPO subsidiary HCL
eServe for Rs 2 crore. The July-Septemberquarter in 2002 ended badly, with a
lull in the group’s networking, services as well as BPO business. The company’s
adoption of the client rationalization strategy post these results is a key
factor for the spurt in growth that followed. The group decided to concentrate
on key clients and explore the entire gamut of service needs, instead of
deploying resources on a multitude of small clients.

"HCL Technologies had been focussing on the outsourcing of high-end
research and development of overseas clients while most other Indian companies
were capturing the IT budgets of global companies. With the changing dynamics of
the industry, we started gunning for IT budgets as well," said Chowdhry.
"The idea was to offer clients a four-legged stool–software R&D,
application development, IT infrastructure, as well as BPO services," he
adds, explaining how clients using any one of these four offerings from the HCL
group were tapped for buying the other three. The strategy helped and revenues
picked up. HCLT ended FY 2002-03 with 17% growth–from Rs 1,552 crore to Rs
1,812 crore–while HCLI grew 16%–Rs 1,221 crore to Rs 1,422 crore. HCL Perot
showed flat growth.

"The entire bulk of HCL Perot’s business is concentrated in the
applications space. With consolidation in certain segments and a cut in IT
budgets, the company could barely manage to sustain last year’s
revenues," explains Chowdhry. Another factor which affected revenues was
the unexpected appreciation of the rupee.

November 2002 saw trouble brewing between HCL and Perot Systems over
management control. After a flurry of media reports and speculation over the
future of the partnership, the dust finally settled, with no change in the
nature of the partnership or composition of the management team. Subsequently,
HCL Perot announced plans to invest Rs 30 crore in upgrading its four
development centers in the country and overseas. The investment will be in
setting up a development center in Dallas, USA and upgradation of infrastructure
at the existing software development centers at Noida, Bangalore, London and
Singapore. HCL Perot will recruit up to 600 software professionals in Calendar
2003.

E-serve, which accounts for close to 6% of the company’s revenues
currently, is expected to contribute about 15% in year 2003-04.

Growth drivers

In April 2003, HCL Technologies bagged a five-year $160-million contract for
BPO service operations from telecommunications service provider British Telecom.
Burgeoning government orders drove growth at HCL Info. In fact, the share of the
government in HCLI’s order book is over 60%. The company also benefited from
the extension of 100% tax benefits to IT hardware players for a period of three
years in the Exim Policy for 2003-04. The reduction in cell phone duties
resulted in a reduction of prices by 11%-12% and also curbed grey market sales
to a great extent. Growing sales of Nokia cellphones also boosted HCL
Infosystems’ telecom distribution business.

HCLI received an order to automate value added tax services from the Andhra
Pradesh government. In January 2003, HCLT entered into an alliance with
Aalayance Inc, a US-based $4.5-million company in the enterprise application
integration and business integration space.

In April 2003, The Storage Networking Industry Association (SNIA) an
international organization dedicated to delivering storage networking
architectures, education, and solutions for the IT community, joined forces with
HCL Technologies to further advance the Storage Management Initiative
Specification (SMI-S).

Team DQ