According to this, the company was expected to shift its focus (to some extent) from the technology development to application and products/engineering services. Over the past eight quarters since the restructuring announcement, the contribution of application/engineering services rose to 41 per cent of consolidated revenues in 2003-04 first quarter from 27 per cent in the 2001-02 second quarter.

Over the same period, the contribution of technology development services fell to 25 per cent from 44 per cent. And during this entire period, the contribution of product services remained relatively steady between 14 per cent and 18 per cent. It is quite obvious that portfolio re-balancing is largely complete and it is likely that this trend may be sustainable in future.

But given the technology competence in verticals such as semi-conductors, scale-ups in the key existing accounts and some new account wins, the company has the potential to ride the wave in technology service recovery, if it happens in a big way. As the billing rates are also higher, it will also have a favourable impact on its operating profit margins.

In 2003-04 first quarter, both onsite and offshore utilisation rates were up from the previous quarter. But, considering that offshore utilisation rates has further room for improvement in line with rising revenues, it will have a positive impact on operating margins in the coming quarters.

Secondly, the integration of the software business unit (consisting of package implementation and systems integration) of HCL Infosystems with HCL Technologies is almost complete. The package implementation business of HCL Infosystems is likely to offer a positive trigger to operating margins over the next couple of quarters.

Finally, HCL Technologies has cash and equivalents of over $ 325 million at the end of 2003-04 first quarter. Recently, HCL Technologies decided to divest its full equity stake in the HCL Perot Systems joint venture to Perot Systems for $105.3 million (Rs 480 crore) for all-cash consideration.

The resolution of this two-year long tussle will help the company to focus better on its core organic software business.

Moreover, the company has recently adopted a policy of considering its dividend payout on a quarterly basis. Given its already strong cash position, it may be important to monitor the use of the divestment proceeds in the near future.

Risks and challenges

Despite a good improvement in fundamentals, HCL Technologies will continue to encounter the following risks and challenges to growth:

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