HCLTech reports fastest Q2 growth in five years, calls AI revenue in a first

Core Insights - HCL Technologies Ltd achieved its strongest second-quarter performance in five years, reporting a revenue of $3.64 billion, which is a 2.8% sequential growth, surpassing the Bloomberg estimate of $3.54 billion [1] - The company reported a net profit increase of 8% sequentially to $486 million in the quarter [1] - HCL became the first among India's major IT outsourcing firms to report revenue from advanced AI, generating $100 million in Q2 [2] Financial Performance - HCL's revenue growth was primarily driven by banks and financial institutions, contributing to a fourth of the incremental revenue of $99 million [4] - The Americas accounted for more than half of HCL's business, indicating strong geographical performance [4] - The company retained its revenue guidance of 3-5% in constant currency for the full year, while raising its full-year services revenue guidance to 4-5% from the earlier 3-5% [10][11] Market Position and Strategy - HCL's growth trajectory contrasts with larger peer Tata Consultancy Services (TCS), which reported subdued earnings and plans to invest over $6 billion in data centers [3] - HCL's approach to AI focuses on building intellectual property and enhancing the intelligence layer for enterprises, differing from TCS's hardware-centric strategy [18][19] - The company dismissed plans to enter the data center business, emphasizing its focus on AI solutions instead [17] Workforce and Restructuring - HCL added 3,489 employees, ending the quarter with 226,640 employees, while TCS cut over 19,000 jobs during the same period [14] - The management discussed a restructuring plan aimed at shutting down redundant facilities and managing workforce reductions through regular processes [12][13] - HCL retained its operating margin guidance for the full year at 17-18%, with profitability increasing by 110 basis points to 17.4% in Q2 [16]