Hello, I'm Vina Venugopal from the Financial Times. I publish a newsletter twice a week covering India's business and economic landscape. I'm thrilled to be sitting here with C. Vijayakumar, the Chief Executive Officer of HCL Technologies, one of India's top IT services company with clients around the world. Um, CVK, this is an interesting day to speak to you. The markets have had another day of a shake in confidence in the sector. But it's also been an especially tough month. The future kind of looks uncertain, especially to market analysts. What do you think will get the industry out of here and restore confidence?
Um, so, it's really difficult to comment on. First of all, thank you for having me and really appreciate this time and conversation. It's very difficult to really comment on the market reactions and how the market sees a specific event or an announcement. But I think what I want to very confidently say is the relevance of what the tech services companies do to our clients is of paramount importance to our clients. Our ability to understand or our existing understanding of clients' context, all the legacy landscape they have, is a very critical and relevant capability that we bring to clients. Of course, technology is moving at a breakneck speed. A phenomenal progress due to different dimensions. But the real challenge is in deploying this technology at scale with a business outcome in mind. I think that is where the biggest challenge is, and that is the biggest opportunity for service providers like us and the industry as a whole. So, I think the enterprise context and really the deep knowledge that we have about enterprise is probably underappreciated when some new announcements come. Actually, nothing is I mean, a lot of things continue to happen the way it's been happening. There are a lot of very engaging client conversations. Our pipeline continues to be good. Our bookings continue to rise. And everyone wants to see how this technology can deliver impact and value. And that's the journey we are on.
So, um, what are these client conversations about now?
Yes. So, I think clients also very well recognize that all the sound bites that come out of different forums cannot be entirely translated as a benefit to the enterprise. Right? I'm not saying the sound bites are wrong. The sound bites are accurate in a certain context, in a very narrow context. Each of those sound bites are right. But can you convert them to or extrapolate them to everything that the enterprise does? The answer is no. But wherever it is very powerful, how do you really scale that within an enterprise? Customers are constantly asking us, 'How can you help me adopt this technology and scale in a manner that it delivers certain real business outcomes?' Right? And I do think clients are also having meaningful conversation about reimagining a lot of their existing processes with an AI-first mindset. Because today you have a lot of silos in an enterprise. For example, you could have silos due to different functions. Some of the silos are also getting fixated due to these software products and these SaaS solutions that are there. But AI really helps you to break those silos and reimagine the workflows to be the most efficient or really make it frictionless, enhance customer experience, make it a lot more intelligent. So, I think that is an opportunity which customers are looking at and how we can help in that journey.
So, you started laying out plans within HCL Technologies to counter the AI disruption a couple of years ago. AI revenues last quarter was about 144 million, I think. Can you detail some of these initiatives and take stock of how they have panned out?
As I articulated in a couple of other conversations as well, our ambition is to become the world's best AI solutions company. Right? I say solutions in a deliberate way. We do a lot of services. We have some software products. We also use a lot of technology OEMs. So, we want to be the solution provider who brings everything together and delivers an outcome for the clients. How are we doing it? Of course, the most important thing is people transformation. Our ability to convert every one of our employees to be a super user of AI is really the biggest unlock that we can achieve. And there are four key pillars of our strategy. First is we have a big service portfolio. How can we proactively transform the service portfolio by adopting AI even if it means there is some deflation in some of the revenues? So, we are being proactive about it. The second aspect is continue to invest in creating intellectual property. And today the intelligence layer is exploding. It's becoming powerful. So, we're not investing in the intelligence layer. We're investing in creating IPs, which will make the intelligence layer much more relevant and scalable for enterprises. Like our AI Force platform really helps leverage SDLC across all the tasks which are part of the SDLC. Because coding is only 30% of the SDLC. So, how can you leverage it and also continue to create the platform that will learn the enterprise context, will integrate different data sources, will ensure secure and responsible use of AI? So, that's the platform we are building. Similarly, there are many vertical solutions we are building because with an AI native mindset, you can solve many problems and silos within an enterprise in a seamless manner. So, that's where we are focused. And the third element is a lot of new services. IT services is a big market, but AI is also creating completely new services.
Like for example, physical AI. Physical AI is about robotics and AI coming together. It's the ability of the systems to sense physical objects and comprehend the physical space and take decisions and act autonomously. I think it's going to be a trillion-dollar opportunity. At least 100 billion dollars would be the services spend. So, for this we need to invest in labs and solutions and take it to market. So, we already have a 100 million run rate for physical AI, and we think it'll grow to a billion dollars in the next 2 to 3 years. The second opportunity is AI factories. There are so many data centers which are getting rolled out. All of this huge capex spend of trillion-plus dollars, but it also means some of that will be services spends. So, how can we be focused in gaining access into all the large data centers that are happening and be a service provider in designing, planning, implementing, and managing them on an ongoing basis. So, there are many such opportunities that we are seeing.
But it seems to me in talking to you and others in the industry, both as IT services and what was formerly business process outsourcing, that it is all collapsing into an anodyne service where it's difficult for one service provider to really differentiate themselves. Is that a correct reading of the situation? And how are you differentiating?
No, I think it's an opportunity to differentiate. Because everything is getting reimagined. Our differentiation is in two ways. One is we are being very proactive about modernizing our services, even if it means some deflation in our revenue. But the revenues have not deflated. That's where the hypothesis is playing out. If you go with the mindset that you want to proactively deliver AI-led service transformation, and that is working, clients see that their spend is reducing or they're getting the desired benefit. It's very likely that they will spend more with you. And that's what is playing out and we are the fastest growing because we are being proactive about changing our revenue streams. The second big differentiation is the IP and the platforms. I think that is the biggest differentiation. Last quarter we won two large deals. One is a mega deal, the other one is a large deal. It was about consolidating from multiple vendors to just one strategic AI technology partner. While we had to meet a lot of requirements to be in the final shortlist, the biggest difference in the final analysis was our AI platform. While everybody is trying to build platforms like this, when the client really wants it to be demonstrated, we can deliver 10 use cases in a manner that is responsible, with guardrails implemented, and it is seamless and can scale across the enterprise. I think that is the difference our IPs are delivering.
There is a concern at an India level that we've been slow in getting on to the AI bandwagon. That there are no sovereign models from here. In fact, I was speaking to someone earlier today who was saying that our large IT services companies don't have the imagination to sort of really crack the AI market. What is your view on this? Has India missed the bus?
