Mumbai: India’s largest software services exporter Tata Consultancy Services Ltd (TCS) has set up a digital enterprise unit in Silicon Valley to club its social, mobility, analytics and cloud (SMAC) computing technology services under a single roof—a move that may help it become the first Indian company to exceed $100 billion in market capitalization, analysts say.

TCS has been working on the concept of setting up the digital business as a separate unit since January 2012, and now has “a few thousand employees in this unit that we set up in June", Satya Ramaswamy, vice-president and global head of TCS Digital Enterprise, said in a phone interview on Tuesday from Santa Clara, California.

Ramaswamy, who joined TCS in 2010 after the company acquired Brightfon Inc., a mobile solutions firm he founded in July 2008, said SMAC had evolved over the last five years.

Mobility, he explained, is evolving into pervasive computing with connected-ness and the so-called—and much-hyped—Internet of Things gradually becoming a reality, while analytics and Big Data are providing tools to transform business processes.

“Social media, too, is evolving into community networks and influencing product design," said Ramaswamy.

M for Mobility in the SMAC acronym has become important for companies with the proliferation of mobile devices such as notebooks, tablets and smartphones. S for Social has become critical with the success of social networking sites such as Facebook, Google Hangouts, Twitter and LinkedIn.

A strategy built around A for Analytics, which also covers the phenomenon of Big Data, helps companies to make sense of the vast quantities of data that individuals and companies generate—to find patterns and take better decisions.

Last, but not the least, comes C for Cloud computing, which is about delivering technology services over a network and comes in three models—public (the Internet), private (servers that the client controls) and hybrid (mix of public and private cloud technologies).

A TCS global trend report released on Tuesday indicated that while social media is “being taken seriously by most enterprises—more than two-thirds (companies) have at least one FTE (full-time equivalent) committed to social media, and the average company will spend $19 million on it and employ 56 people—significant benefits are not being achieved most commonly due to information not reaching the right functions".

Analysts believe the focus on SMAC services will not only help TCS expand its non-core business, but also help the information technology (IT) services provider become the first Indian company to cross the $100 billion mark in market value. TCS’s current market cap is close to $61 billion.

On 20 August, Viju K. George, an analyst at JPMorgan Chase and Co., wrote that TCS could achieve the feat if it “grows revenues at a CAGR (compounded annual growth rate) of 15% over four to five years, holding margins/ROE (return on equity) constant at current multiples".

Since things don’t work in a linear fashion in the business world, this will demand “vision, strategy and execution" from the TCS management and the company will have to move beyond just traditional IT services to an SMAC framework, George wrote.

“Seeing the cloud as a friend, rather than a foe, would enable TCS to open up new markets/segments and create new, non-competitive demand brought upon by the cloud and more generally, the SMAC," wrote George. “The SMAC framework helps create an accretive ecosystem that has a positive rub-off on IT services (including offshore IT services). TCS will have to create more evidence of creating and building up material, proprietary revenue streams (revolving around SMAC or otherwise)."

On 30 August, brokerage CLSA came up with a similar report. “TCS has the potential to be India’s first firm to reach $100 billion in market cap... It may not be at the forefront of technology changes that could hurt its traditional business, but it is catching up fast," wrote Nimish Joshi and Rohit Kadam, the authors of the report.

TCS, on its part, is trying to bridge this gap with SMAC services. It has invested in building a network of cloud data centres across the globe. It is also building a 3,000 sq. ft, UK-based data centre for private cloud, according to a 12 July Credit Suisse Research report.

While the company’s CubbuZZ is a social networking and promotions platform, its mKRISHI is a mobile-based rural service delivery platform. TCS also has iON, an integrated IT-as-a-service (ITaS) for small- and medium-size businesses, and TCS BaNCS, a cloud-based solution for banks, capital market firms, insurance companies and financial institutions.

In India, TCS Digital Enterprise is also helping many insurance companies to enable agents do smarter and quicker business on their devices, said Ramaswamy, adding that engineers at its Cochin centre also help in developing global SMAC products.

TCS is also “focused on building intellectual property (IP) and has patented around 25 products of TCS Digital Enterprise, some of which are getting executed", Ramaswamy said.

SMAC technologies may currently account for less than 10% of the total revenue of all IT companies, but the market is forecast to touch over $1 trillion by 2020, according to software industry lobby body Nasscom. According to research firm International Data Corp.’s estimate, Indian IT services vendors should generate over $225 billion in SMAC-related revenue that year.

Indian IT services vendors’ aggregate full-year revenue touched $108 billion in fiscal 2013.

In a September 2012 report, titled Are we at the tipping point of emerging technology spend?, research and consultancy firm Offshore Insights said SMAC service lines will become mainstream with deals becoming big and complex.

It added that the world’s 2000 largest companies would spend 15-16% of their IT services/outsourcing outlay on SMAC, and India will export $15 billion worth of SMAC software and services in fiscal 2017.

While certain elements of SMAC are possibly over-hyped or are re-classifications of traditional service lines, these service lines present an attractive opportunity for Indian IT services companies over the next few years, the Credit Suisse Research report said.

Cannibalizing ERP

Consider this. The top four Indian IT services companies derive approximately 20-30% of their revenue from consulting, enterprise resource planning (ERP) software package implementation and maintenance. However, professional services around SMAC are likely to cannibalize (in decreasing order of impact) traditional ERP implementation, applications outsourcing and business process outsourcing, the report said.

ERP refers to the business software companies use.

Within the cloud, for instance, corporations are focused on the infrastructure layer and are selectively adopting offerings in the application layer such as Workday (HR) and Salesforce (customer relationship management).

The importance of SMAC is not lost on other IT companies.

“All the large companies appear to be investing in these service lines. TCS appears to be slightly ahead in mobility while Wipro Ltd and HCLT’s (HCL Technologies Ltd) infrastructure management business aids their cloud initiatives," the Credit Suisse report said.

TCS will continue to invest in its digital solutions portfolio to capture large-scale transformation deals and expand wallet share within client engagements as discretionary spending improves throughout 2013, said an 18 August Technology Business Research Inc. (TBR) report.

Cognizant Technology Solutions Corp. will invest in SMAC technologies and consulting to boost sales and offset potential immigration reform impact, said a 6 August TBR report. The research firm believes that “Cognizant’s ability to generate interest in SMAC technologies through thought leadership and advisory services positions the firm to meet, if not exceed, its $500 million target for SMAC revenue in 2013".

Jennifer Hamel, a research analyst with TBR, said SMAC solutions will enable Cognizant to build mindshare within key verticals such as financial services and retail, and compete for deals with rivals such as TCS.

“The new emerging corporate IT stack based on Social, Mobile, Analytics and Cloud, or “SMAC" for short, is one of our key focus areas and we are pleased with the progress that we are making in it.," said R. Chandrasekaran, group chief executive (technology and operations) at Cognizant, adding that the company expects “to deliver about $500 million in SMAC-related services this year".

Infosys Ltd, the country’s second largest IT services provider, has SocialEdge to track consumer conversations on social platforms such as Facebook and Twitter and execute targeted campaigns on social media; mConnect—an enterprise middleware; ShoppingTrip360—a retail analytics tool; and Infosys Cloud Ecosystem Hub to help companies build, manage and govern a unified hybrid (private and public) cloud environment.

HCL Technologies, according to a 17 December 2012 note by Erin Hichman, an analyst with TBR, will “leverage its Big Data capabilities in order to drive towards its goal of a $1 billion in revenue from SMAC within the next five years".

Wipro, on its part, made two acquisitions—$30 million in May to acquire a minority stake of nearly 10% in Opera Solutions, a New Jersey-based Big Data company; and a minority stake of around 10% in Axeda, a US based cloud computing firm in June for $5 million. Axeda’s core strength is in its cloud and machine-to-machine (M2M) solutions.

Calls to Infosys, Wipro and HCL Technologies went unanswered. Most Indian IT companies are in their so-called silent period, a phase before quarterly results when they do not respond to media questions.

According to the Credit Suisse report, Wipro is also “advantageously positioned due to its acquisition of Infocrossing (in 2007)" that enables it to provide hosting services on its own data centres.

On Tuesday, TCS shares gained 0.98% a piece to close at 1,945.55 per share on BSE, while the benchmark Sensex gained 0.71% to close at 19,517.15 points and the BSE IT index gained 0.09% to close at 7,846.17 points. The markets were closed on Wednesday on account of a holiday.

From the beginning of the year, TCS has gained 54.59%, while the benchmark Sensex is up 0.47% and the BSE IT Index has risen 38.04%.

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