IT Companies Face Staff Cuts, US Slump, AI Opportunities – Industry News

In FY24, the domestic IT sector led by giants like Infosys, Tata Consultancy Services (TCS) and Wipro faced a confluence of challenges and strategic pivot points. In particular, the sector has faced collective workforce reductions, a decline in US revenue, fluctuating performance in the BFSI sector and a paradox of increasing deals not translating into equivalent revenue growth.

This complex scenario unfolded alongside proactive steps in artificial intelligence (AI) and generative AI (GenAI), areas that both promise future gains but are currently overshadowed by a cautious market prospects.

The workforce is declining for the first time in decades

During FY24, InfosysTCS, and Wipro collectively saw a workforce reduction of 63,759 employees, marking a major turning point in the hiring frenzy that has characterized the post-pandemic period. This significant decline was part of a strategic shift towards greater operational efficiency, which reflects the industry‘s adaptation to changing global demands and ongoing economic uncertainties.

“The immediate workforce reduction is mainly driven by the market and demand environment and operational efficiencies. In the long term, as we move to IP-based platforms, AI, there could be more and more divergence in terms of workforce growth,” says Saurabh. Govil, CHRO of Wirp said. “But if you look at our entire portfolio, there is a lot of work that we do where manpower has been intensified, so in the future it will be a combination of both,” he added.

Underlining the strategic nature of these adjustments, Infosys Chief Financial Officer Jayesh Sanghrajka said: “When we started the year, we were at 77% occupancy… we had to realign some of those as growth changed and now we are at 82%. Due to the occupancy rate, our staff turnover has also decreased significantly, which is why you see the net staff reduction.”

Despite this downsizing, the companies developed varying strategies for future hiring, tailored to changing market conditions. Infosys plans to combine on-campus with off-campus workforce as it adapts to changing demand dynamics. TCS, on the other hand, is taking a more assertive stance as it plans to hire 40,000 new freshers.

Question from the US

Demand from the US, a crucial market for these IT giants, showed a significant weakening in FY24 as customers held back discretionary spending and macroeconomic uncertainties caused delays in deal conversion, significantly impacting the company’s revenue streams IT companies.

TCS experienced a decline in market share in North America, from 53.4% ​​in FY23 to 51.1% in FY24. Infosys also saw a decline in North America, with its revenue share falling from 61.0% to 59.6%, while Wipro showed stability and slight growth in the Americas, with America 1 growing from 28.5% to 30.0% in revenue share, but America 2 fell from 30.8% to 30.1%.

Furthermore, the bank failures of Silicon Valley Bank and Signature Bank in the US in early 2023 and the interest rate hike of the US Federal Reserve, which kept interest rates on hold for longer and longer, hampered the BFSI sector’s deals. Indian IT companies get at least 25% of their total revenue share from the sector.

In the BFSI sector, all three companies experienced volatility. Wipro reported a nearly 9% decline in revenue in this segment in FY24, while TCS saw a 1% decline in BFSI revenue at constant exchange rates.

Deal wins

Although these IT companies said they won a record number of deals, a paradox remains of more deals won versus actual revenue results. Infosys said it reached an all-time high in deal value, securing contracts worth $17.6 billion throughout the year, with a notable $4.5 billion in the last quarter alone, yet cut its FY25 revenue growth guidance by just 1-3% compared to a previous year. 4-7%. And this is after the company revised down its revenue forecasts multiple times in FY24.

In response, many brokerage firms such as Nomura and ICICI Securities have entered the market have cut their target prices for Infosys shares, signaling concerns over the sector’s near-term growth prospects. “The net new component (of Infosys was) at 44%, down sharply from 71% in the third quarter, and tilted more towards renewals,” ICICI Securities said.

TCS and Wipro also had robust deal pipelines; However, these successes did not translate into proportionate revenue increases, mainly due to weak discretionary spending from their customer base, they said. The cautious outlook for FY25 reflects continued uncertainties, with Infosys and TCS emphasizing unpredictable market conditions.

“I don’t want to take a gamble and say that growth would return in the first or second quarter; that will be too early,” TCS CEO K Krithivasan said.

However, TCS expects a potential recovery in US and banking sector growth, although the exact size and pace of the recovery remain uncertain. “Management believes the US and banking industries should start to grow rapidly, but the size and pace of the rebound were not clear,” HSBC Global Research said in a report.

Gen AI frenzy

Despite these challenges, there is a beacon of strategic optimism in companies’ focus on AI and GenAI, while also continually seeking a strategic realignment towards more efficient operating models using these new technologies.

TCS said it has doubled its commitment to these technologies, significantly expanding its deal pipeline in these areas to $900 million. Highlighting the strategic importance of these initiatives, Krithivasan said, “Our investment in AI and GenAI is not just about staying current. It’s about setting the pace and leveraging these technologies to transform customers’ businesses and our own operating models.” Wipro also said it sees strong growth in the generative artificial intelligence space, without disclosing its revenue figures. “Artificial intelligence is transforming the needs of our customers as they seek to harness its power for competitive advantage and greater business value,” said Srinivas Pallia, the newly appointed CEO and managing director.