TCS results signal enterprise readiness to spend on IT after Covid-19 pause

Tata Consultancy Services (TCS) reported more sales in continental Europe than the UK for the first time ever as its financial results showed demand strengthening following the Covid-19 slowdown.

The Indian IT services giant’s latest results indicate that businesses are ready to invest in IT, but also signal operational cost-cutting, digital transformation and supplier consolidation.

TCS has always been referred to as India’s biggest IT services firm, but on Thursday 8 October it boasted the highest market value of global IT services companies for the first time. At the time, TCS was valued at almost $145bn, while Accenture, previously the biggest, was valued at $143.4bn. TCS did not retain the top position for long, however, with Accenture retaking top spot early on Friday 9 October, but this could be the first of many periods at the top for TCS.

In its second quarter of the current financial year, TCS, which has more than 400,000 staff globally, reported sales of $5.4bn – over 7% higher than the previous quarter. But the Covid pandemic has taken its toll, with sales valued at 1.7% less than the same period last year.

The announcement contains strong signs that enterprises are ready to release IT budgets, after a pause during the height of the pandemic, with $8.6bn worth of deals completed by TCS globally.

One clear sign is that digital transformation is a top priority for many large companies. The Covid-19 pandemic and subsequent restrictions placed on people’s movements hammered home the importance of digital technologies to businesses and their customers. For example, online retail and banking became necessities as high streets closed down and businesses had to use the latest technologies to enable their staff to work from home.

TCS CEO Rajesh Gopinathan said the results signalled “the start of the first phase of a multi-year technology transformation cycle”.

“In the current phase, enterprises are building a cloud-based foundation that will serve as a resilient, secure and scalable digital core,” he said. “In subsequent phases, we will see the native capabilities of these platforms being utilised to create innovative new business models and differentiated customer experiences.”

Peter Schumacher, CEO of management consultancy The Value Leadership Group, said TCS’s results indicated corporate IT strategies.

First, he said, this is evidence that corporates are looking to reduce operating costs, because “when the corporate agenda wants this, all Indian suppliers benefit”.

But despite cost-cutting, IT is one area set for investment, with a “surge in re-prioritisation and acceleration in IT investments to enable online working and business,” said Schumacher.

He added that TCS’s figures provided a sign that businesses are reducing the number of suppliers they work with through consolidation. “When times are tough, enterprises find it more difficult to take on new vendors so existing vendors get a bigger share of business,” he said.

If crises bring anything positive to the table, it is lessons for the future. In April, when the pandemic slowed business levels and forced businesses and governments to take decisive temporary actions, Stanton Jones, director and principal analyst at ISG, said businesses should be planning for life after the current pandemic.

“While we’re still in a stabilisation phase, we think it’s just as important to think about what’s coming next. And we believe that is going to be a fundamental rethinking of what it means to be a resilient business,” he said at the time.

“While cost takeout and infusing cash will be the number-one priority in many industries, we think companies will also reassess their digital transformation through the added lens of operational resilience,” said Jones. “To do this, companies will need to be able to engage customers and employees in both physical and digital worlds, and the ability to switch between them seamlessly as conditions warrant.”

Technologies such as automation software, digital labour, cyber security and e-commerce platforms will see “supercharged growth”, he said.

One other interesting footnote in the TCS results was that, for the first time ever, total sales to continental European businesses were higher than sales to UK businesses in the quarter.