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January 22, 2006

HCL Technologies captures $330m DSG deal

Offshore IT services vendor HCL Technologies Ltd has won a five-year deal worth an estimated $330m with UK-based electronics retail group DSG International Plc.

By CBR Staff Writer

New Delhi, India-based HCL will provide system development, application delivery, infrastructure support, and maintenance services to DSG’s internal IT department as part of a co-sourcing agreement.

Mike Babarkoff, corporate vice president at HCL, told Global Computing Services that the deal was the largest ever IT outsourcing contract signed by an Indian company, outstripping the $250m deal signed by Tata Consultancy Services with ABN Amro last year. HCL was selected from a shortlist of three vendors, pipping rival bids from a large UK-based IT services vendor and a major US player.

He said HCL would support DSG’s applications and infrastructure in the UK and Ireland, but not the company’s troubled operations in continental Europe. An estimated 350 of DSG IT workers will transfer to HCL as part of the deal, which begins on February 5.

Babarkoff said HCL would gradually shift the service to an offshore delivery model over the next 12 months, and expects to manage 60% of the project from offshore locations, with 40% being delivered onsite.

Because HCL is taking over the internal team at the client supporting DSG’s infrastructure, it doesn’t need to sub-contract large parts of the project to other suppliers to provide services such as break/fix repairs and onsite support. However, it is looking for a partner to provide data center space in the UK in which to host and monitor DSG’s equipment.

Babarkoff said the DSG deal is not a one-off, and has other contracts of a similar magnitude in the pipeline. The company won a $50m deal with CAD software vendor Autodesk Inc last November to provide applications and data center outsourcing services.

HCL ranks as India’s fifth largest IT services contractor, based on its annual sales of $764m in its last fiscal year. However, the company is strongly placed in the emerging infrastructure management services space, where it offers data center, helpdesk, network, and security management services. HCL runs some 45,000 non-desktop devices for its clients, including 50,000 network devices and 15,000 security devices.

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All the major Indian vendors are keen to extend their reach into areas such as infrastructure management and BPO as their traditional stomping ground of applications management and maintenance becomes increasingly commoditized.

HCL recently reported a 35% increase in net profit to $40.2m in its second fiscal quarter ending December 31, 2005, on sales that rose 27% to $234.2m. Infrastructure services accounted for 11% of revenue.

The company’s share price has risen 12% since the beginning of the year to trade at IRP 605 on India’s National Stock Exchange.

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