PremiumRegarding the technology services industry, the Panglossian view is that it is recession-proof. Companies across industries would continue to spend on upgrading their technology, benefitting technology services firms like Tata Consultancy Services Ltd, Infosys Ltd and Wipro Ltd.
A counter view is that in times of rising inflation and borrowing rates, a consumer would spend less, translating to less business for a Wal-Mart or Daimler, making these companies hold on to their spending on technology, which will eventually hurt the growth of homegrown technology services firms.
Amid this ongoing debate, Twich+ would like to put a spotlight on one leading indicator that shows that a slowdown is taking hold.
The growth at the three “Hyperscalers" from Silicon Valley is ebbing.
Microsoft Azure, Amazon Web Services, and Google Cloud added $61.49 billion in incremental revenue, between January 2019 and December 2021.
This was on the back of businesses, across the globe, further cutting their spending on buying servers and upping their use of the infrastructure offered by Amazon Web Services or Microsoft Azure, which rents out computing power by the hour. This corporate migration allowed homegrown IT firms to post their fastest growth last year in more than a decade. However, for two straight quarters, Azure, AWS, and Google Cloud have added less incremental revenue than in the first half of 2021.
The three largest cloud computing firms added $5.276 billion in incremental revenue in the first six months of this year as against $5.631 billion in new business in the first half of 2021. It could be argued that after a scorching growth in 2021, cloud computing firms are merely witnessing a tad correction this year and there is no structural change in demand.
So how much do the Indian IT services firms make from their partnership with the three large cloud computing giants?
None of the large technology services firms quantify revenue from cloud computing. But in a post-earning interaction with analysts on 13 October last year, Wipro Ltd’s chief executive Thierry Delaporte said that “the Cloud Ecosystem" accounted for about 30% of the company’s revenue. Assuming cloud revenue accounts for between 25% and 35% of overall revenue at the homegrown IT services firms, slow growth at the “Hyperscalers" suggests that the future order bookings at the IT services would take a hit.
Twich+ does not want to come across as an alarmist but two straight quarters of lower growth for cloud services is a worrying sign for the future growth of the technology services industry.
