HCL says Europe the next destination for big IT deals

HCL Technologies said that the era of big bang outsourcing deals from the US has come to an end. Indian IT providers had seen a virtual disappearance of deals that generate $100 million or more per year when the recession started two years ago. Despite the recession ending, such deals are yet to make a comeback. HCL, the fifth largest Indian IT services provider, posted its best results since the recession began.

“The United States has moved to phase 2 of outsourcing,” Vineet Nayar, CEO HCL Technologies said, after announcing the company’s December quarter results. Like Tata Consultancy Services, the December quarter saw HCLT’s best performance since the recession began, cementing its entry into the post-recession era. Revenues (counted in US Dollars) were up 32.6% compared to a year ago while profits were up 39%.

Even compared to the immediately preceding quarter, they were 7.5% and 23.7% higher respectively — even better than the surprising numbers posted by TCS on Monday.

However, missing in action were big client acquisition announcements despite a guidance by Nayar three months ago that he expects a “huge” number of deals in the December quarter. The company snared 17 large deals during the last quarter, but posted only a moderate increase in the number of clients generating $10 million or more of revenues — up from 64 in the September quarter to 67 in December. It continued to have just one client generating more than $100 million a year, while it added a new client to the $50-$100 million per year bracket.

“I am surprised.. but I feel the JFM (January-February-March) quarter is going to be a big one,” Nayar said, explaining that some of the anticipated deal-flow is likely to materialize in the March quarter. HCL, which added more than 10,000 employees during the six months ended September 2010 in anticipation of deal-flows, adding just another 2,000 during the December quarter.

The firm said the US and Europe, the two big markets for Indian IT firms, are witnessing the operation of completely different push and pull factors. The US, it said, is still dependent on stimulus spending initiated by the government while the European firms are under tremendous cost pressures. “While it may not seem so, the fact that European companies are under tremendous pressure to cut costs works to our advantage,” Nayar said. Most European companies, especially those on the continent, have resisted outsourcing their work due to many reasons, including a general attitude that looks at outsourcing as unethical.

HCL said the cost pressures may make Europe the new US for IT firms with possibility of many large deals being up for the grabs.