- Annualised AI revenue rises 20% sequentially to $3.1 billion in the second quarter
- Discretionary tech spends still under pressure, says CEO
- US-listed shares of Infosys, Wipro fall
Oct 8 (Reuters) - Tata Consultancy Services reported its weakest September-quarter sequential revenue growth in three years, signaling continued pressure on traditional IT services demand even as AI-related revenue jumped nearly 20% at India's largest software exporter.
AI is disrupting India's $315-billion software services sector by undermining its billable hour business model, but is also creating new demand as clients buy services built on the technology. Companies are ramping up investments to capture this emerging demand and cushion the hit to their core business.
"The AI revenue should be read in tandem with the accelerating decline in traditional revenues (which) points to AI-led pricing pressure and lower spending on services. We believe most large IT-services firms to face similar headwinds as legacy revenues contract," Ashis Dash, lead analyst at Systematix Group, said.
TCS's annualised AI revenue rose to $3.1 billion in the second quarter from $2.6 billion in the previous quarter. Despite the surge, TCS's sequential revenue growth, excluding currency fluctuations, stood at 0.5% — the lowest in three years for the July-September quarter.
"Demand environment has not materially changed since last quarter and discretionary programmes without near-term value remain under scrutiny," said CEO K Krithivasan during a post-earnings conference call with analysts.
Deal wins for the quarter edged up to $9.6 billion, from $9.5 billion in the preceding quarter but were lower than the $10 billion reported a year earlier.
TCS is part of the salt-to-software Tata Group, which is at the centre of a dispute over control of holding company Tata Sons and whether it should go public.
The company's consolidated revenue rose 11.2% to 731.88 billion rupees ($7.57 billion) year-on-year in the second quarter of the fiscal year. Analysts, on average, expected revenue to come in at 731.48 billion rupees, per data compiled by LSEG.
Quarterly net profit for TCS rose 15% to 138.84 billion rupees, compared with analysts' mean estimate of 137.97 billion rupees.
The Tata Group firm is the first major Indian IT company to report numbers in the current earnings cycle. Smaller rivals Infosys, HCLTech, Wipro and Tech Mahindra will report in the coming weeks.
Other Indian IT companies are also expected to report growth in AI services contribution as a percentage of their revenue, Anshul Jethi, analyst at LKP Securities, said.
US-listed shares of TCS's smaller rivals Infosys and Wipro fell 1.6% and 2.4% respectively on Thursday evening.
Reporting by Sai Ishwarbharath B; Editing by Nivedita Bhattacharjee and Jochelle Mendonca
Source: Reuters