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Vipin V. Nair

We are moving the communications and imaging business from HCL Infosystems to HCL Infinet so that Infinet will also grow rapidly. Today it is a Rs 30 crore company; but this strategy gives it the potential to grow to Rs 800-900 crore.

NEW DELHI, Dec. 29

HCL Infosystems Ltd, India's largest personal computer maker, hived off its software exports business on December 18, and sold it to HCL Technologies in a stock-swap deal. The company Chairman and CEO, Mr Ajai Chowdhry, spoke to Business Line on why HCL Infosystems chose to exit from the software exports business and what are his future strategies. Excerpts from the interview:

You were very passionate and bullish about your software business in the past. Now what made you to sell it off?

If you recall, one of our plans for growing the software business was acquisition. We had very good delivery capability, and what we needed was a customer acquisition arm, which creates the real value. That acquisition strategy did not work; we were not able to get close to a deal that we liked. Meanwhile, in the last six to 12 months, things started changing quite a lot. There was slowdown and the US and other international markets started to come around to people who are scale players. So every analyst started to write that it's the top five or eight companies who will survive in the market and people who are sub-scale and smaller won't survive.

And that is turning out to be true.

We saw the writing on the wall very clearly: that either we should become very big or it does not make sense to be small. So we decided to focus on what we are good at and come out of what we were not able to scale up. Hence we decided to hive off the software exports business. The best option for us was to hive it off to a well-known HCL company. We started talking to HCL Technologies for integrating our software exports into their fold. They have the capability for scaling it up and the marketing muscle.

One of the key things we wanted to ensure while doing this deal was that the shareholders of HCL Infosystems would get lot of value out of this. So what we did was we created a scheme by which a shareholder who has nine shares of HCL Infosystems would get two shares of HCL Technologies. It's not a swap but an added-on. If we were to take cash, it would have come to the company. Since we are a cash-rich company, we don't need cash (through such a deal).

This means that the shareholders of Infosystems will continue to participate in the future growth of the software exports business through HCL Tech.

Why did you decide to go with HCL Tech? Had you considered or negotiated other companies who might have offered a better price?

It gives a lot of comfort for the employees and existing customers to move to another HCL company. For HCL Tech also, the integration does not create any issue. We had about 883 employees in the division who would now move to HCL Tech. Moving to another company could have caused discomfiture to our customers too.

How are you going to structure HCL Infosystems' business after this?

There were three businesses within HCL Infosystems: The domestic IT business, communications and imaging business and the software exports. In our subsidiary, HCL Infinet, we had the networking and technical helpdesk businesses. The technical helpdesk business of Infinet, which was of about Rs 2 crore, is also now moving to HCL Technologies. The idea is that now we are coming out of everything sub-scale.

Now what happens is that HCL Infosystems would morph into a 100 per cent domestic IT company, selling PCs, servers, workstations, storage and other solutions. We are moving the communications and imaging business from HCL Infosystems to HCL Infinet so that Infinet will also grow rapidly. Today it is a Rs 30 crore company; but this strategy gives it the potential to grow to Rs 800-900 crore. With this, we will have two strategic business units: one addressing the IT market and the other the communications and imaging market.

Also, this helps us cut costs tremendously as we will have a common sales force. The imaging and Infinet's market are both retail in nature and a single sales force do for them.

Now that the high-margin software exports business is gone, how do you ensure that your bottom line is not impacted?

In software, if you have scaled up, then you have profits. We have seen that. If you look at Rs 30-crore software companies, you will find that they are not making money. What happens is that when you are small, you are at the low end of the market and don't get your pricing right. So if you are big, you get the right price, recognition and big deals. Our software business contributed only Rs 17.78 crore to our bottom line for the last fiscal. So I don't see any impact.

As far as margins are concerned, you will be surprised to know that the overall domestic IT services, if you manage well, have very good margins. The total domestic hardware and related services is an Rs 28,763-crore market, which is projected to grow to Rs 35,000 crore next year. This market consists not only of hardware; it also includes packaged software and other IT services, where the margins are good. Actually, the money is in the support you provide for the PCs, servers, storage and networks - in multi-locations, multi-vendors. We are very uniquely positioned to do that through our spread across the country.

And unlike the software business, where you work on projects basis, here you can continue to have follow-on business for many years to come.

Could you spell out some specific plans that you have for your mainstay, the PC business?

The PC market has two very large parts - the commercial business comprising the Government and corporates and home/retail segment. We are already a dominant player in the first part. Now our objective is to go to class C, D and E cities and create a home/retail market there. You have to create need as well as value for these markets and our plan is to create low-cost products, with local language software. For instance, this could be in the form of non-Intel, non-Microsoft PCs. We are now also creating a separate brand, the Ezeebee, for such products. We have started test marketing of these products and they should out soon.

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