HCL puts $780m in IP tie-up with IBM

Bengaluru: HCL Technologies has taken an unconventional route to partially offset the slowing down of its traditional workhorse - infrastructure management services (IMS). India's fourth-largest IT services firm has pumped $780 million into five intellectual property (IP) partnerships with IBM. The spend on these IP deals, signed over the last five quarters, surpasses the company's capital expenditure in the four years beginning 2013-14 ($695 million). The partnership has so far yielded revenue of a little over $200 million.

The IP deals are part of a 15-year engagement with IBM for automation and DevOps solutions. Some part of the investment will be amortised over the period of the engagement (amortisation of intangibles reduces the value of the intangible assets over time).

Based on HCL's estimated annual amortisation expense schedule for intangible assets, the outstanding amortisation beyond 2022 is $510 million. A financial analyst, who did not want to be named, said the bulk of the amortisation is going beyond 2022 and given that obsolescence is very high in the technology space, the carrying value seems very optimistic. The amortisation will have an impact on the company's net profit going forward.


HCL had entered into a similar joint venture a few years ago with the erstwhile CSC (now DXC) to modernise and run applications on one of the old core banking platforms, Hogan. However, the JV didn't take off as expected.

Jimit Arora, who leads Everest Group's IT services research practice, said in the future of IT services, ecosystems will be key to the relevance of companies. He said a variety of models will evolve, including frenemies / competitors.