HCL Technologies: Challenges Ahead

India's fifth-largest software exporter faced a piquant
situation during the slowdown. With R&D spending nose-diving
internationally, the company saw its traditional sources R&D
outsourcing and technology development slide down. It then decided to
diversify including into infrastructure management services and BPO.
Fortunately, the company's acquisition of Gulf Computers to cater to
application development services in the government and that of Aquila
Technologies for CAD/CAE and product data management skills began to pay
off last year. It bagged a a multi-year, multi-million dollar
collaborative IT co-sourcing contract with AMD for IT infrastructure
management; and an order to develop sophisticated embedded software for
Airbus A340 flight warning system. Early 2003 also saw signs of revival in
the semiconductor industry and the company was quick to increase its
presence in this high-margin, high-tech space, which has traditionally not
been a stronghold of Indian technology companies, by showcasing its
e-Diagnostics capabilities at a global consortium of leading semiconductor
manufacturers International SEMATECH (ISMT).

The acquisitions, however, have come with their own set of problems including huge pay-outs and cultural integration. HCLT spent the majority of FY 2003-04 ironing out these issues. In a re-structuring, HCLT took over HCL Infosystem's software development and export business (the Professional Services Organization) to become the groups sole exports entity. It also divested its stake in HCL Perot Systems (its former 50:50 JV with Perot System Corp) in an all-cash $105 million deal. Despite the attempt to rationalize holdings, HCLT still has 23 subsidiaries, four joint ventures and a host of alliances to manage.

An area of concern, however, is the 45% manpower growth. HCL Tech has been consistently adding to its manpower base in anticipation of higher demand for its services in the future. If volume growth fails to pick up in accordance with the company's expectations, its performance might take a severe beating in the days ahead. In fact, the company's per employee productivity has already gone down 14% from Rs 21 lakh to Rs 18 lakh even as attrition doubled from 7.6% to 14.57%. This is much higher than TCS's 6.1%, Infosys' 8.5% and Wipro's 12.8%.