India’s HCL Technologies Ltd. expects the improving economic climate in the U.S. and recently won large orders to spur revenue growth in its largest outsourcing market in April-June, after a blip in sales growth from the region in the just-ended quarter.
“The overall economic environment in the U.S. is looking positive and that should be reflected accordingly [in the ongoing quarter's revenue],” HCL America Inc. President Shami Khorana said in a recent interview.
HCL Technologies is India’s fourth-largest software exporter by sales and gets more than half its revenue from the U.S.
But even as the U.S. grapples with a bloated fiscal deficit and political discord on tackling the mounting debt, Mr. Khorana expects clients’ technology spending to gather pace, taking cues from positive economic data such as the rising stock market and climbing pending home sales.
HCL Technologies posted a better-than-expected 34% surge in January-March earnings, driven by strong 4.8% rise in business volume–touted to be the best in India’s software industry in the quarter–as clients continued to pour money into outsourcing technology services.
But revenue growth from the U.S. for the just-ended period was tepid as some contracts that matured were shipped to low-cost destinations, while others were in initial stages of generating income, Mr. Khorana said.
Sales from the U.S. grew just 0.7% to $496.6 million, much lower than the average quarterly growth rate from the country of more than 5%.
Still, the transformational projects the company has been winning in the region, coupled with a healthy pipeline of deals, indicate the average revenue growth momentum will continue in the ongoing quarter, he said.
India is one of the most preferred technology outsourcing destinations for companies in the U.S. and Europe. A recent report by research firm Forrester said technology spending in the U.S. is expected to increase 8% to $805 billion in 2011 and that the growth would come largely from businesses wanting to invest in IT projects.
The new orders from the U.S. are mostly discretionary or non-essential in nature and translate to projects that are for a limited period of time, Mr. Khorana said. This reflects the fast-pace recovery in the region from the slowdown, he added.
In contrast, revenue generated in Europe is mostly from on-going cost-saving projects, which are for longer duration, he said. Such projects are bread-and-butter type of contacts for software exporters.
Revenue growth in the U.S. continues to be driven by increased spending by clients in healthcare and pharmaceutical businesses, and regulatory changes in financial services, he said.
Uncertainty still prevails on the future of spending in telecommunications, said Mr. Khorana.
In a bid to address the rising demand for outsourcing, the company is making a “significant investment” to open a new office in Redmond, Washington, in May that will house its 400 staff currently working for software giant Microsoft Corp., Mr. Khorana said.
He expects to hire another 400 staff in this office in the next two-to-three years to service other clients in the region and increase its employee count in North Carolina to 500 from 100 in three years.
Clients in the U.S. have confirmed that their technology budgets for the year are either flat or expanding, whereas in Europe, the second-largest market, budgets are either flat or shrinking, he added.