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Upbeat revenue forecast of IT firms signals strong demand for cloud, digital

Upbeat revenue forecast of IT firms signals strong demand for cloud, digital
Photo Credit: Pixabay
15 Feb, 2022
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Major Indian IT firms upped their revenue growth guidance during the October-December quarter earnings, indicating a strong demand from cloud and digital-led services as clients invest in different stages of their digital transformation journey.

Infosys Ltd., for instance, raised its FY22 revenue growth guidance to 19.5-20% in constant currency from the 16.5-17.5% it had guided earlier, based on a strong demand environment and ability to execute.

“We are in a situation where all the choices we made in the last several years on digital, cloud, and new areas, are in resonance with our clients…our execution has been good and that is what really gave us the confidence to increase our guidance,” Salil Parekh, CEO and MD of Infosys, said after the results. 

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Wipro Ltd., which guides for the quarter ahead, expects its fourth quarter revenue to grow in the range of 2-4% in constant currency, translating to a full-year growth of 27-28%. According to Wipro, its cloud ecosystem revenues grew at an accelerated pace of 30% on a year-to-date basis.   

In the third quarter analyst call after declaring the results, Wipro chief executive Thierry Delaporte, explained that till three to four years ago, cloud discussions would happen with CIOs while CEOs would not focus much on it "because it was considered to be an infrastructure or back-office discussion".   

"Today cloud is a way for organizations to be a giant, to be able to generate more opportunities, to be inventive, to develop solutions, connect with new clients…I do not think I have seen yet a company that can say that it has reached 50% of the cloud transformation…we are still in the early stage of the cloud transformation across industries, so it is a massive wave ahead of us,” Delaporte added. 

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Also read: Global cloud spending crosses $50 billion during Q4 2021

Tata Consultancy Services Ltd (TCS) typically does not give a formal revenue growth guidance but indicated an upbeat outlook. “Cloud adoption will continue to drive significant amount of demand in the short term. We call this Horizon One, which essentially involves moving workloads onto the cloud, and using infrastructure-as-a-service as the primary value proposition there,” said Rajesh Gopinathan, CEO & MD of TCS. 

Even after the majority of the workloads have moved to the cloud, TCS sees opportunities in what it calls Horizon Two and Horizon Three. “Horizon Two is when native capabilities of the cloud are leveraged to generate significant transformation at the company level. These native capabilities could be seamless fabric of the cloud (like) security, analytics…between the three hyper scalers, we are tracking more than 250 native capabilities, that are now seeing greater adoption among our customers,” Gopinathan added. 

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Gartner expects cloud to be at the centre of new digital experiences as global cloud revenue is expected to total $474 billion in 2022, up from $408 billion in 2021. 

To be sure, while clients may be already using services from leaders like Amazon Web Services (AWS), Microsoft Azure, Google Cloud and IBM Cloud that command a lion’s share of the cloud market, analysts believe IT services players have their own value proposition in partnering with these leaders. 

“They help by providing a one-stop-shop to expedite customers’ cloud journey, integrate multiple clouds, and scale up. Most IT services companies are partnering with these hyperscalers to provide tailored solutions to meet specific client requirements,” said Sanchit Vir Gogia, founder and chief analyst, Greyhound Research. 

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Wipro’s Delaporte spoke on similar lines. “They (hyperscalers) are coming to us because they need us to develop vertical solutions on their platforms or on the cloud…The growth in the cloud will be massive over the next five years at least.”