Bengaluru: The rise in cloud computing in the early years of this decade has started hurting the growth of some of the largest software services companies in India, as for the first time, business growth from managing technology infrastructure of customers was less than half of the overall revenue at both HCL Technologies Ltd and Wipro Ltd in the past two years.

This development portends an ominous sign for the country’s third and fourth largest software services companies and is in contrast to the performance of market leader Tata Consultancy Services Ltd (TCS), which maintains that it has not seen any cannibalization in revenue as more companies look to migrate workloads to the cloud.

India’s $167 billion software services outsourcing industry generates much of the revenue from deploying software engineers for infrastructure maintenance services, or IMS, or to write and maintain code for applications (application development and maintenance) or even offer customer support (BPO).

Since the turn of the century, the IMS business for most companies has grown on a par with or faster than the company’s overall growth in revenue.

Still, a bigger challenge for some companies such as HCL Technologies is that at least half of the total IMS revenue still comes from legacy work of establishing data centre business, even as most Fortune 1000 companies are looking to replace their own data centres with public cloud services.

HCL Technologies, India’s third-largest software services provider, saw its IMS business grow 10.5% between April-June 2016 and April-June 2018, less than half of the pace of its overall growth, according to an analysis by Mint.

Ditto for Wipro. The Bengaluru-based firm saw its IMS business grow 3%, against overall revenue growth of 6.4% in the same period.

“As most clients embrace cloud, we are seeing some softness in the infra business. About half of our total IMS business is data centre business," HCL president and chief executive C. Vijayakumar said in an interview last week.

Both TCS and Infosys, the No. 1 and No. 2 IT services firms, respectively, have stopped disclosing revenue from service offerings, but Mumbai-based TCS maintains that it has historically stayed away from setting up data centres and maintaining only infrastructure needs of its clients.

“If you are in the business of setting up data centres and leveraging your balance sheet, then yes, when customers move to cloud, you’ll be affected," TCS’s chief operating officer N. Ganapathy Subramaniam said earlier this month.

“As long as you are not in the capex-driven business of data centres, it is actually a huge uptick and not cannibalization," said Subramaniam. TCS, he said, has “generally stayed away from capital-intensive data centre business and our business through this is very, very small".

“We don’t go and leverage our balance sheet to set up huge data centres. So when you are moving applications into the cloud, that whole application transformation, migration, building applications around it, is an add-on business," said Subramaniam.

An analyst at a Mumbai-based brokerage said “cloud is clearly impacting overall growth and this can be seen from weak organic growth for these companies".

“There is more pain for the companies as overall digital revenue is still less than a third, while the business from data centres remains vulnerable," said the analyst, who declined to be named.

The rise of Amazon Web Services (AWS), the cloud computing unit of Amazon.com Inc., and Microsoft Azure has led to most Fortune 1000 companies looking to move applications from servers stationed traditionally in their offices to a cloud computing platform. This has made most Indian firms stitch partnerships with these public cloud computing firms, but at the expense of letting go of money earned by offering thousands of engineers to work from a central facility that houses thousands of computers, which in turn was set up by software services companies.

Consequently, cloud computing firms are witnessing scorching growth: 12 years after it was founded in 2006, AWS is already bigger than India’s largest software services company, TCS, as AWS’s revenue totalled $21 billion (on trailing 12 months basis).

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