Clients turn to Indian IT outsourcers for AI faster than industry can train staff

Earnings calls from the Big Four show massive reskilling in progress

India's top four IT outsourcers saw a quarter where clients were hesitant about everything except their desire to discuss AI, according to earnings reports from TCS, HCL, Infosys and Wipro.

"The flavor of the quarter was generative AI," said [PDF] Tata Consultancy Services CEO K Krithivasan, describing his firm's first quarter of fiscal 2024. "In every conversation I have had with the clients over the last three months, this has unfailingly come up."

He said clients were exploring the use of AI for improving productivity, creating content, and providing customer services.

"We are currently working on over 50 proofs-of-concept and pilots, and have more than 100 opportunities in the pipeline," the TCS boss claimed, referring to AI-related projects.

Meanwhile Infosys CEO Salil Parekh revealed his corporation was working on 80 generative AI projects encompassing large language models for software development, text, document, voice, and video.

HCL CEO C Vyakumar projected rapid growth in both internal and external generative AI, and that "in a very, very short few weeks, we have 140 projects, some of them pilots, some of them implementation."

Meanwhile, Wipro recently announced a $1 billion investment in AI and launched a related ecosystem called Wipro ai360, which CEO Thierry Delaporte claimed [PDF] brings together "Wipro's full range of capabilities, including solutions, services, platforms, research and intellectual property as well as partnerships and talent." So basically everything but the kitchen sink.

Interest in AI is so ubiquitous that entire talent pools must spring up virtually overnight to meet demand. TCS said it planned to amass more than 100,000 gen-AI-trained associates, and Infosys claimed to have trained 40,000. Wipro was even more ambitious, saying that over the next 12 months it will train its entire workforce – nearly 250,000 employees – in using and handling AI.

Wipro isn't alone on building its own ecosystem. HCL has its own platform for AI and so-called intelligent automation, called DRYiCE. Infosys has its AI platform, Topaz, which Parekh said "is resonating well with clients."

The topic of generative machine-learning models began popping up in all four of the outsourcers' quarterly financial reports at the end of last year. As of 2023, the technology dominates their disclosures to investors and analysts.

The knock-on effect for everything else

HCL and Infosys are both miffed that clients are cutting back their IT spending. For example, the latter of the duo reduced its revenue growth forecast for the financial year from four to seven percent to one to three percent – a dip that could amount to $600 million – and blamed customers slashing their budgets.

"Clients are taking a month-on-month approach, resulting in very limited visibility on their future spending, even within their own organizations," lamented TCS chief Krithivasan.

Add that to execs from all four giants describing business as "soft," and AI seems like as good a project as any to spend a few quarters on.

HCL CEO Vijayakumar said measuring and demonstrating the effectiveness of ML systems was also complicating the market. "I don't see anyone trying to take the contractual position of how much we have to deliver through this technology because there are too many dependencies," he explained.

"So I think there is definitely a lot of hype in the short term, but we do believe it will have some meaningful benefits in the long run," he added.

TCS chief operating officer N Subramaniam offered some future scenarios with which IT outsourcing could assist on the AI front. "If the technology can predict, let us say, the container price three quarters down the line, then it could be a boon for the shipping industry," said the COO.

Subramaniam also pointed out that no one yet knows how the cost of running artificial intelligence workloads will evolve, nor its profitability – which makes it difficult to model for the purposes of predicting financial growth.

As to whether generative AI would reduce workforces, the COO said: "It is something that we will have to evaluate. But in all the technology adoptions in the past that we have seen, it has only increased the volume of work and thereby actually we needed more expertise and more hands to do the heavy lifting that people really look for."

Not all wine and roses

More hands are exactly what the industry was looking for in 2022, with the outsourcers going as far as banning moonlighting, clawing back bonuses, and issuing non-compete clauses to keep staff from leaving. In May 2022, one in five employees at the top four had left their employer in the year prior. Attrition, as of this quarter, now tops out at 17.8 percent at TCS for the past twelve months, and 14 percent at Wipro.

Hiring was muted in the industry, with HCL and Wipro decreasing headcount year-on-year, and Infosys down sequentially.

"A substantial portion of attrition has been back-filled by training and re-skilling the existing pool of talent and deployment of freshers," explained Infosys CFO Nilanjan Roy.

Vijayakumar said HCL's workforce was reduced primarily as a conscious decision not to back-fill empty seats.

"While we are committed to honor all the offers we have made, our focus will be on leveraging the capacity we built last year," added TCS HR head Milind Lakkad.

And Wipro backed away from its plan in February to place entry-level hires immediately – or "sometime soon" – if the techies took a 46 percent salary cut.

Wipro chief operating officer Amit Choudhary said during his earnings call that "utilization clearly is going to continue to be a KPI that will keep driving." ®

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