CSC, HCL Tech Tie-up: What Brings The Rivals Together?

by CXOtoday News Desk    Jan 15, 2014

partners

The recent talks of a partnership between rivals HCL Technologies and Computer Science Corporation (CSC) have raised many eye brows.  Whether it is an attempt to draw synergies from each other’s strengths or just a smart move to deal with their legacies, the tie-up could be an indication of a big change in the approach of traditional IT vendors. “The alliance represents a coming together of rivals and signals a trend of partnerships and consolidation in IT. The two are said to have been in talks for a partnership for several months,” reads a TOI report.

Eric Simonson, managing partner, research at Everest Group says, “Very strong move by both companies. It is rare to see such a bold move, particularly by CSC who still has the legacy data centers. Could they sell these assets to a REIT and free-up capital to reinvest in the cloud?”  

The two companies have been grappling with their own legacies trying to reinvent themselves and align with the changing dynamics of the market. This move could help them streamline their existing operations and brace up for the emerging new age technologies.

Simonson says, “In effect, CSC raises the white flag on traditional, asset-heavy IT infrastructure outsourcing. They can’t sell the business, so this lowers their costs and raises margins as they look to sunset the business. They end up with less stranded assets as they then focus on their cloud business – a huge bet on the future of cloud and their ability to compete in that space.”

Both the companies have been leaders in their own right and if they are able to take advantage of each other’s strengths, the partnership may well be a start of a whole new phase. “HCL will get access to large transformation deals in the US, especially those from the public sector and government that now goes to American companies like IBM, Unisys and CSC. CSC gets access to the excellent delivery capabilities in infrastructure management services that HCL has and which is crucial to large transformation deals,” a source close to the development was quoted as saying.

“CSC has around 6,000 people in infrastructure services and HCL over 20,000. This is expected to give CSC scale and access to a low-cost structure that would improve its profitability. Based in Virginia, US, CSC has 81,000 professionals in more than 70 countries. It had revenue of $15 billion for the 12 months ended September 27, 2013,” says the TOI report. “For HCL, infrastructure is now an over $1 billion business and has for long been its fastest growing vertical. CSC’s global infrastructure services revenue for the September quarter was $1.2 billion, which was 35% of its revenue in the quarter.”