HCLTech reverses course, bets $365 million on data centre business

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Bengaluru: HCL Technologies Ltd on Monday unveiled plans to build data centres, reversing a stance it took nine months ago against investing in asset-heavy businesses as the country’s third-largest information technology (IT) services company seeks a bigger role in the artificial intelligence (AI) infrastructure value chain.

The announcement accompanied a muted set of April-June earnings, where it reported 0.9% sequential decline and 3% year-on-year (y-o-y) growth in revenue to $3.65 billion. Growth was weighed down by weakness in the telecom, media, and entertainment vertical, which accounts for about a tenth of its business.

Even as net profit grew 0.4% on a sequential basis and 8.4% y-o-y to $488 million, its margins jumped 40 basis points to 16.9%, which the company attributed to higher productivity. In its weakest full-year guidance issued in July in at least four years, HCLTech maintained its April guidance of 1-4% revenue growth in FY27 in constant currency terms.

On Monday, the company said it will invest about ₹3,500 crore ($365 million) to build and operate data centres with up to 50 megawatt (MW) of capacity. The move makes HCLTech the second Indian IT services company after Tata Consultancy Services Ltd (TCS) to enter the capital-intensive data centre business. Last October, TCS announced a $6.5 billion investment over six years to forge 1 gigawatt (GW) of new data centre capacity.

“We see this as a logical extension,” C. Vijayakumar, chief executive officer (CEO) of HCLTech, said during a post-earnings media briefing, adding that AI has made compute and data centre capacity very scarce, and data centre capacity and compute have become the strategic bottleneck in the entire value chain.

“So, owning a foothold there allows us to sell the full stack of what we believe is a higher margin service with the sovereign assurance to both enterprise clients and governments,” Vijayakumar said.

That was different from nine months ago, when the CEO had backed opportunities to scale up the company’s asset-light business model, and said it will not invest in big assets, data centres or real estate.

Now, HCLTech is looking at building full-stack data centres, offering clients an integrated stack including power, storage, compute and servers, rather than just the underlying physical infrastructure.

Vijayakumar said the company’s strategy is to deliver the entire AI stack—from data centres and GPUs to models and applications. “So the overall value creation is significantly of a very different magnitude when you really look at this as a full stack, and that's really what we want to play,” he added.

The company is also expected to use its capacity for its own clients amid rising AI costs.

“And we are also looking at leveraging the data centre that we are building for delivering managed services and outcome-based contracts for global clients, because today token costs are a very important component of the overall delivery,” said Vijayakumar.

Amit Chandra, vice-president of HDFC Securities, said HCLTech’s full-stack approach was slightly different from that of TCS’s colocation-plus-compute model. He added that the 50MW capacity is HCLTech’s long-term aspiration that would be built out gradually.

“For now, HCLTech will use this data centre to run small language models, which run locally and consume very less tokens,” Chandra said. “The value per megawatt for HCLTech will be higher vs a typical colocation or hyperscaler model as frontier models are costly and most enterprises don’t require them. Small language models are the way forward.”

The data centre push follows a series of strategic bets by HCLTech. Last month, it became the country’s first IT services firm to pick up a stake in an AI firm, acquiring 10% in Sarvam AI for about $150 million. Sarvam is a Bengaluru-based AI startup that provides AI models in Indian languages.

In January ...