This week in tech: TCS Q2 results, H-1B rule change and IBM splits to focus on cloud

India’s largest IT major and also the most valuable IT services firm globally was the first to kick off results on October 7. Results were stellar, an indicator that recovery is in sight and maybe the worst is over for IT firms.

According to Rajesh Gopinathan, CEO - TCS, the growth was over 20 quarter high at 4.8 percent QoQ at the back of what the IT major termed as multi-year tech transformation cycle, where clients are migrating to cloud, investing in digital collaboration tools and touchless technology.

TCS recorded Rs 40,135 crore in revenue for Q2 and its operating margins hit an eight-quarter high at 26.2 percent for the quarter

This growth was broad-based, across verticals and geographies led by Europe and verticals banking and financial services and retail. The uptick in BFS and retail aided the growth of the North American market, which the company said was soft in Q1. Even the UK, which was volatile, posted 3.8 percent growth QoQ.

According to Gopinathan, the region is structurally volatile and weak, and the company would continue to be cautious in that market.

Analysts and other executives earlier pointed out that recovery is expected from Q3 FY20. TCS’ results sure sets the tone for the rest of the IT players who would be declaring their results starting October 13 with Wipro closely followed by Infosys on October 14, Mindtree on the 15^th and HCL Tech on the 16^th.

From what it appears right now, growth is likely to bounce back as enterprises invest in digital to keep the businesses going. It is going to be a wait and watch to see how its peers perform.

Trump administration announces new H-1B rules

With elections less than a month away, Trump administration brought in two new rules that would make it tougher for Indian IT firms to hire H-1B workers in the US.

The wage rule by the Department of Labor increased the H-1B and employment-based green card applicant wages significantly from entry level employees to experienced professionals. It came into effect on October 8. The Department of Homeland Security announced changes to H-1B regulations that narrowed the definition of “specialty occupation”. So if you are a mechanical engineer, you probably will not be qualified for a software engineer job.

As Twitterati posed, even Google CEO Sundar Pichai would not qualify since he does not have a computer science degree. He is a metallurgical engineering graduate from IIT Kharagpur and material science and engineering graduate from Stanford University.

It also limits the validity of H-1B visas at third-party worksites to one year.

Of course, these rules would have a significant impact on Indian IT services firms and also Indians, who are the largest beneficiaries of this visa. IT industry body NASSCOM said these rules were based on misinformation and would have a huge impact on the US economy. Earlier IT executives pointed out that restrictions on highly skilled labour would impact innovation in the US, which the country is known for.

Lawsuits challenging the new rules are expected. At least one against the wage rule is underway. The US-based immigration lawyer Greg Siskind said they are being rounded up by plaintiffs, a mix of employers and employees, and are hoping to file a lawsuit in the coming days.

IBM splits to focus on cloud

The 109-year-old company is dividing into two so that it can focus on cloud and AI, which is clearly where the demand is. The company is hiving offs its $19 billion infrastructure services business.

This confidence comes from its acquisition of Red Hat, which it bought for $34 billion in 2019.

About time, say analysts. For, the company has been struggling to grow in recent times and its legacy business, much like for the rest of the firms, is growing slowly. On the other hand, its cloud business is growing and at the back of COVID-19 it is likely to accelerate.

According to Arvind Krishna, CEO - IBM, the opportunity cloud offers is $1 trillion and the move is to have a sharp focus in this space.

True enough. Analysts have pointed out that services and software need different strategies and investments for growth. Chirajeet Sengupta, partner, Everest group, said in a note that at scale these businesses, services and software, require different investment strategies, and this move can go a long way in resolving IBM's traditional dilemma.

Timing could not have been more perfect as the world is going through a transformation phase.