IT clients on fence over AI project deals

There is so much change in the business and technology environment that such events reflect the risks associated with large deals in new technology. Large deals usually happen in matured technology space, while deal sizes in the new technology areas are smaller - Pareekh Jain, founder, Pareekh Consulting, tells Bizz Buzz

Casting Shadow Over IT

• Global customers tighten belt amid uncertain environment
• Things are unlikely to improve in coming quarters
• IT firms may not pursue large deals in new technology areas

Bengaluru: Large IT outsourcing contracts concerning emerging technologies are facing the risks of termination or ramp downs as clients tighten belt amid an uncertain economic environment. Experts are of the opinion that Infosys’ recent loss of a large deal in the artificial intelligence (AI) space reflects those risks associated with new technology areas. Enterprises are having second thoughts on any kind of discretionary spend committed earlier in new technology areas as they are not sure of reaping dividend in the coming quarters.

“There is so much change in the business and technology environment that such events reflect the risks associated with large deals in new technology. Large deals usually happen in matured technology space, while deal sizes in the new technology areas are smaller,” Pareekh Jain, an IT outsourcing advisor & founder of Pareekh Consulting, told Bizz Buzz.

“It shows IT firms may not be very keen on pursuing large deals in the new technology areas in the present environment as clients are likely to evaluate such commitment on a later date,” he added.

Infosys on Saturday announced that the company has terminated its $1.5 billion agreement with an undisclosed global company, focused on artificial intelligence (AI) solutions. This deal, which was signed in September this year, was spread over 15-year period.

This is in continuation to the disclosure made by Infosys vide letter dated September 14, 2023, titled ‘Company Update’, with respect to a Memorandum of Understanding with a global company, which was subject to parties entering into a Master Agreement, Infosys said in a regulatory filing to the stock exchanges.

“The global company has now elected to terminate the MoU and the parties will not be pursuing the Master Agreement,” Infosys added.

The company didn’t disclose the reason behind the termination or the name of the client. During the second quarter ended September, large Indian IT firms had won several large deals with sound total contract values (TCV). Market leader Tata Consultancy Services (TCS) had a total order book of $11.2 billion in the second quarter as many cost takeout deals got bagged by the company. Infosys bagged its highest ever large deal worth $7.7 billion during the second quarter out of which 48 per cent was net new. Deal pipeline of Wipro remained robust as it won deals worth $3.8 billion, up by six per cent YoY, while its large deal bookings was at $1.3 billion, up by 79 per cent YoY.

Despite winning such large deals, revenue accretion in recent quarters remained low. Sources in the know said that clients are not giving much work order, keeping the volume of work low. Things are not going to improve in the coming quarters, they opined.