While IBM’s numbers reaffirm the believe demand has bounced back for the sector, at the same time it also throws of challenges that tapping into the demand would require significant amount of reinvesting into the business thus putting the pressure on the margins at least in the short to medium term.
Infosys, India’s second largest IT services company, for example, last week said it was expecting its operating margin to be in the range of 22-24 per cent in FY19 as it was looking at making a significant amount of investment to keep the business in good health in the long run. The company said, among others it is looking at investing in digital technologies organically and inorganically, hiring more number of skilled resources onsite including the US, the largest market for Indian IT so far and training/reskilling of employees.
IBM’s revenue growth is an early indication of technology capital expenditure returning back, said brokerage firm AxisCapital in a report. “Also, consulting delivering stability indicates that discretionary spends showing signs of life. Overall healthy performance gives positive read-thru for Indian IT,” said Shashi Bhusan, Executive Director - IT Services & Telecom, Institutional Equity Research at Axis Capital. “We continue to expect last leg of volatile performance from Indian IT, before returning to steady performance.”
The hallmark of IBM’s Q1 number was it posted fairly strong growth in the key digital segment such as cloud, analytics and AI. The Strategic Imperative Services which largely constitute of the digital products and services and account for almost 47 per cent IBM’s revenue grew 12 per cent in the quarter, led by cloud consulting practice, analytics and mobile. On contrary, the Global Business Services which includes consulting, global process services and application management, grew 4 per cent in the quarter at $4.2 billion.