TCS betting big on AI wave
IT major plans to invest $7 billion in developing 6 GW of data centres; It announces acquisition after 12 yrs; Both initiatives indicate its rapid pivoting from its old strategy
image for illustrative purpose
Bengaluru: TCS’ decision to enter the data centre business with aggressive investment plan shows the intent of the company to ride on new initiatives for staying ahead in the AI (artificial intelligence) era.
The company, which did its first acquisition after a decade, also showed the pivot in its strategy for building capabilities.
“TCS has done acquisition after around 12 years. At the same time, the new initiative about data centre shows that the company is going to deploy a sizeable capital on a new bet. For winning large deals, data centre ownership gives a competitive edge. Secondly, India digital stack is going to be important in the current world and the government is promoting it. So, for winning large government contracts and BFSI deals, this data centre initiative will be useful,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting toldBizz Buzz.
“However, the RoC (return on capital) on the data centre is less than the services business. Also, there is sister concern within Tata Group, which could have taken up the data centre business because it is a very different profile of business for TCS,” he added.
He pointed out that the final word on the new business initiatives will be written after their implementation.
TCS has unveiled a plan to develop data centres of 1 gigawatt capacity as part of its AI-related business initiatives. The company is likely to invest around $7 billion in the next five to seven years for development of these data centres. TCS also acquired US-based ListEngage for $72.8 million, making it the first after more than a decade.
Experts are of the opinion that as demand for sovereign cloud is going to increase with protectionist business measures by various nations including the US and Europe, TCS may see better business prospects for data centre business. However, margin profile of the company is likely to be negatively affected due to low margin the data centre business.
“In a way, there are two sides to this story. Firstly, TCS has started pivoting its business model in the wake up the current AI era, while most of its peers have not taken any visible moves yet. Secondly, TCS’ acquisition shows that the company has changed its position with regard to M&A strategy and it is going to aggressive going ahead,” said another analyst.
Indian IT services companies are facing risks to their established business model due to sweeping changes brought in through AI.
