#NDTVProfitAtWEF | What to expect of growth in #IT sector in 2024? C Vijayakumar, CEO of the strongest Q3 results in IT majors #HCLTech, shares his views.
Watch him talk about the sector, #AI, and more with Niraj Shah at #Davos 2024.
Read all #WEF2024 updates: https://bit.ly/420ODMW
Watch him talk about the sector, #AI, and more with Niraj Shah at #Davos 2024.
Read all #WEF2024 updates: https://bit.ly/420ODMW
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TVTranscript
00:00 [MUSIC PLAYING]
00:03 [INAUDIBLE] with Sivajit Kumar of HCL Technologies.
00:12 He's obviously a happy man, because one, the results
00:14 have been very strong, too.
00:16 The HCL presence at Davos has been spoken about in more ways
00:19 than one, CVK.
00:20 Multiple reasons to be happy.
00:21 But I'll start off with something, CVK,
00:23 that we discussed the last time.
00:24 That last year, same forum, you had mentioned
00:27 that as you went into December, or rather, as December closed
00:31 out, things were not looking as great.
00:33 You had used the term that even looking rocky,
00:36 and suddenly things turned around in January
00:38 as you had conversations with clients.
00:40 Is this the same kind of thing that's happening this year
00:43 as well, or not quite?
00:44 Actually, it's different, because if you
00:47 see in 2022 December, we were really
00:51 at the peak of IT spending.
00:53 A lot of customers had initiated significant projects.
00:57 It's just around the time, November, December,
01:00 is when you saw a lot of tech sector layoffs,
01:03 and then it kind of spilled over to the IT services
01:09 in terms of reducing discretionary spend.
01:11 So we were actually going through a down cycle,
01:14 and I think which was quite visible in the first half
01:18 of this year, and it continued.
01:21 Whereas now, I think it kind of feels
01:24 like we're at the bottom of the cycle,
01:28 and the spend could come back.
01:30 That's the kind of optimism that is there
01:33 in a number of conversations.
01:36 However, it's-- it would be a little not appropriate
01:41 to extrapolate that to increasing discretionary spend.
01:44 We probably need to give it some more time
01:47 before we can extrapolate.
01:49 Could you explain that?
01:50 Sorry, because I was about to ask you,
01:52 are you saying discretionary spend will come back?
01:54 It is definitely going to come back.
01:55 It's only a matter of time.
01:58 See, obviously, there is still--
02:01 everybody wants to see what best they
02:03 can do with all the technology options and solutions
02:06 and things like that.
02:08 And AI has created a huge kind of curiosity
02:13 in everybody's mind, gen AI, and everybody
02:16 is piloting a lot of things.
02:17 Like we've had last quarter itself,
02:20 we signed 30 plus programs.
02:23 Now, each of these pilot programs
02:27 are also throwing out a lot more foundational things
02:31 that the customer should be doing.
02:33 Like they need to streamline their data infrastructure.
02:37 They have to kind of get the quality of data.
02:40 All of that has to be done.
02:41 Similarly, security, a little bit of cloud migration.
02:45 There is a big conversation around,
02:47 is it best to do gen AI on hyperscalers
02:52 or is there a better model to do this to ensure the price
02:57 performance is really paying off?
03:01 So I think all of this is going to trigger some spend.
03:03 But obviously, the spend will get
03:05 triggered only when customers feel
03:07 more comfortable about their overall P&L, which, of course,
03:11 some of it is impacted through continued inflation, interest
03:15 rates, and things like that.
03:17 So I think if macro turns, I think discretionary spend
03:20 should come back.
03:21 So safe to assume that for now, you
03:24 would expect that discretionary spend,
03:26 as it should come back for large organizations like you
03:29 to benefit, is probably going to be back-ended in 2024
03:32 as opposed to front-ended?
03:34 It's very difficult to call out, but at least it's
03:38 a few months away.
03:39 That's the sense I get.
03:40 OK.
03:41 Small other aspect, and equity markets
03:43 have taken note of the fact that the December data that came out
03:46 of the US wasn't as bad.
03:48 And therefore, the conversations around,
03:50 when do rate cuts happen, are now
03:51 getting pushed back as well.
03:53 So if indeed the--
03:54 There is usually a reverse in Europe now, right?
03:58 Yeah, but my question rather is that,
04:01 so if that may be the case-- in the US,
04:04 I'm talking about the market right now--
04:06 and the macro picture is not as bad,
04:11 could the reverse happen, that the spends might
04:13 come in earlier than what people may be thinking as well?
04:16 I'm really not sure.
04:18 And we will take it based on every client conversation.
04:20 And I think it's also-- it varies from client to client,
04:24 industry to industry.
04:25 Retailers are going through a little more challenge
04:28 due to increased inflation, freight cost, and all of that.
04:32 So I think there are various elements which
04:34 plays at different points in time.
04:36 And that has--
04:38 I'm not saying that completely changes their behavior,
04:41 but even if it slightly changes, if there is some work,
04:45 if they want to kind of even delay it by a few weeks,
04:48 I mean, of course, it starts impacting us.
04:50 OK.
04:51 You always told me when, for example, in a quarter--
04:54 and you build out the company for years and not even just
04:57 one year, but you always told me that,
04:59 don't look at the quarterly margins when they are down
05:01 because they could turn around, et cetera.
05:02 You've had a very good quarter on the operational front.
05:05 Would the same be true on the reverse as well,
05:07 that don't look at it as the new normal of sorts?
05:10 I would say that because this is an exceptional quarter
05:13 because this quarter also saw a big peaking in our software
05:16 business, seasonally one of the strongest quarters.
05:20 So that directly adds to the bottom line.
05:22 So our 18 to 19 is our guided range.
05:26 So we would be in that range.
05:28 This quarter, we were far above the range.
05:31 Yes, you were.
05:32 Now, Sivike, fill us a bit on the buzzword at the promenade,
05:35 which is AI.
05:36 And how would you think-- because, for example,
05:39 we were talking to the chairman of ABB,
05:42 who said that in his mind, companies
05:45 who are saying that we are completely ready for AI
05:47 are lying because the corporate world across is not
05:50 ready for it.
05:50 Now, please tell us how you think about this.
05:53 Where are we on this cycle?
05:55 And how would IT service companies,
05:56 large companies like yourself, aid corporations
05:59 across the world in adopting AI?
06:01 How would you yourself adopt to generative AI or whatever?
06:04 I think you want to break this down, right?
06:07 Generally, we had things like machine learning led
06:10 automation.
06:12 Whether it is operations or analytics, deep analytics,
06:15 all of that, there was a lot of machine learning
06:17 led inferences and things like that.
06:20 And then there was also natural language processing,
06:23 which was there.
06:25 A lot of computers could really understand the language
06:29 and kind of react to it.
06:30 I think both of this coming together
06:32 has created much more interest.
06:36 And that's really where the gen AI is really playing out.
06:39 Now, I think generally what you could achieve by automation,
06:45 extreme automation through machine learning,
06:47 in an IT operational world, whether gen AI can significantly
06:52 improve from there, we're not sure.
06:55 Maybe another 5%, 10% in IT operations.
06:58 But in software development, a lot more possibility is there.
07:02 25%, 30% improvements are possible based
07:05 on some of the experiments that we've done,
07:08 some work that we're doing for some of our clients.
07:11 So that's possible, but it's again not going to be immediate.
07:14 I mean, this whole thing, you need to train people,
07:16 you need to deploy the right tools,
07:18 you need to kind of adopt, which is again a change management,
07:21 you need to measure and find out areas
07:23 where it could be better used, all of that.
07:25 It's a journey.
07:26 And I do think, I strongly believe
07:28 there is going to be some significant efficiencies
07:31 in software development.
07:32 Biggest area will be the customer service
07:35 kind of operations, where I think there is going to be
07:39 a significant benefit because of the natural language
07:44 processing, the ability to respond in a meaningful manner,
07:47 all of that is going to help reduce human intervention
07:51 in a lot of customer service.
07:53 So I think different customers are in different place.
07:56 So this is on the IT side.
07:58 But if you look at the business side,
08:00 I do think most of the customers are really not ready.
08:03 They're all trying to find what is the best way to adopt it.
08:08 And there is many variables.
08:10 And I think the simple thing is to look at,
08:12 I mean, some of them are directly adopting
08:16 publicly available models.
08:19 But I think it would be not very efficient.
08:21 I think for every industry for different use cases,
08:25 you need to probably adopt either an open source
08:30 or one of the available models, LLMs,
08:34 and then do a little bit of customization
08:37 for your own use case.
08:39 I think that is a significant amount of work that we can do.
08:43 And then you need to build more applications
08:45 which can leverage it.
08:46 So I think that is a part which is in a very,
08:48 very nascent stage.
08:49 And many customers are not prepared,
08:51 but they're trying to figure out what the right way is.
08:53 And we are helping them.
08:55 - Okay, so last two, three questions.
08:58 From a large corporation's perspective,
09:00 as the CEO thinks of the next five, seven years,
09:03 cost of adopting AI and institutionalizing it
09:07 in the company means probably overall costs go up.
09:11 By virtue of the fact that a lot of companies are on cloud,
09:14 the cost of security would ideally go up, right?
09:16 As your colleague Jagdesh was telling me
09:19 the other day as well.
09:20 So do you anticipate IT spends for a large company
09:24 or any company across the world want to move up?
09:26 And are there opposing factors at play
09:28 which help them reduce costs in order to maintain margins?
09:32 Just kind of thinking of them.
09:34 - I mean, while there is a deflation in a lot of areas,
09:37 I think overall IT spend would go up.
09:40 That's my own sense.
09:42 Because the technology adoption is continuing
09:45 to increase across all industries.
09:47 So it's not just in the IT,
09:49 there is a lot of technology in OT, right?
09:51 And that's where our engineering services plays a big role.
09:54 IT OT integration, developing OT technologies
09:58 and sustaining them.
09:59 So I think there's going to be a growing spend in my view.
10:03 - So opportunity is written enough number of times
10:05 for IT services.
10:07 Am I reading this correct?
10:08 That you believe that this would actually be enabler
10:10 for higher business, better operational metrics
10:12 for IT service funds which are ready to...
10:16 - I think, yeah, you have to, I mean,
10:17 every time something new comes up,
10:20 how best you can really enable your organization
10:24 to kind of adopt that as well as work with your clients
10:28 to make meaningful solutions out of each technology.
10:32 I think that's the trick.
10:34 - Okay, and lastly, you know,
10:37 the one aspect of your business
10:40 which you've started reporting separately as well,
10:43 along with HCL tech.
10:45 And that has shown tremendous run rate.
10:47 Now tell us a bit about how have you conceptualized
10:50 in the last 24, 36 months for it to grow the way it has
10:53 and what's the future for that?
10:54 - Yeah, so I think we have some of the best products
10:58 in the world, like whether it is a UNICA or HCL Commerce
11:02 or BigFix or AppScan, these four products in their category
11:07 have very compelling reasons why clients should adopt.
11:10 And it's deployed in some of the largest customers
11:14 in the world and it has helped those,
11:16 the products have really scaled to meet the demands
11:19 of some of the largest customers.
11:21 So we continue to modernize them,
11:23 we've, like in UNICA, we have launched a new version
11:26 which has GenAI embedded, right?
11:29 For one of the large banks, they could use UNICA
11:33 and send out emailers very customized
11:36 to every one of their customers, right?
11:38 So that's the kind of capability we are bringing in.
11:41 So it's really cutting edge capabilities
11:43 in some of the products that we have.
11:46 So I think with this kind of power,
11:48 it's only a matter of time where the adoption
11:51 and then growth comes.
11:53 - For an IT services firm, having such a large product suite
11:56 now and growing is quite interesting.
11:58 - We are the largest software company in Asia.
12:01 I mean, that's quite a--
12:04 - And growing at a fast clip, I might add.
12:06 - It's growing at a low single digits,
12:09 but of course there are many products
12:10 which are growing at a fast clip.
12:12 There are a couple of products
12:13 which are probably declining, yeah.
12:15 - Got it.
12:16 So before I ask you the final question
12:19 on the WEF experience at Davos and customer conversation,
12:22 2024 as you look ahead,
12:25 unpredictable or do you believe predictable
12:28 with a slow growth for now until unless the coin turns?
12:31 - It's a very difficult question.
12:32 World has been so much of volatility has been there.
12:36 So I don't think you can answer that.
12:38 But we are very focused in 2024.
12:40 Our biggest focus is on growth.
12:42 We wanna make sure we continue to grow.
12:45 And this year we bucked the trend.
12:48 We still grew five to five and a half,
12:50 which is the highest in the industry.
12:53 And we want to continue growing.
12:54 That's really the focus.
12:56 - Okay, let's play it as it comes.
12:57 Final question, CVK.
12:58 WEF conversations, how have they been like?
13:01 - I think WEF has been good.
13:03 Of course, it's every step it's the gen AI
13:06 is the biggest conversation.
13:08 And I think as you talk more,
13:10 understand and explain to customers,
13:12 listen to their feedback,
13:14 your thought process also become much more clearer
13:17 where to focus on.
13:18 So I think I take away with a lot of
13:20 take away a significant amount of learnings
13:23 as to how to focus and how to really enable our clients.
13:27 So it's been a good conversation across the board.
13:30 - Okay, great.
13:31 Lovely talking to you.
13:32 Thank you so much for speaking to us today.
13:33 CVK and all the best for calendar year 24.
13:36 - Thank you, Neeraj.
13:37 - And viewers, thanks for tuning in.
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