TCS may lose spot as world’s third largest IT services firm

TE Raja Simhan Chennai | Updated on January 12, 2021

Global ranks could be shuffled if Atos-DXC merger goes through

Will Tata Consultancy Services (TCS) lose its status as the third largest IT services player in the world?

It appears possible, as French IT services giant Atos last week announced a ‘friendly’ merger with US-based DXC Technology. If the deal goes through, it could overtake both IBM Services and TCS to become the world’s second largest global IT service provider (behind Accenture) by the end of the year.

Last week, Atos confirmed that it has approached DXC for a deal to create a digital services leader benefiting from global scale, talent and innovation.

Accenture at top

Atos had an annual revenue of €12 billion (about $14.6 billion) while DXC’s stood at $19.58 billion. If the deal goes through, Accenture will be the number one player followed by Atos in the second spot.

Going by current revenues, TCS will drop to the fourth place in the pecking order after IBM.

But analysts are suggesting the possibility of TCS overtaking IBM (after the US firm’s Global Technology spin-off) by the end of the year to retain the third place.

Elitsa Bakalova, Senior Analyst at research firm Technology Business Research, Inc, said in a report that the Atos-DXC transaction could form the world’s second-largest global IT services vendor, closer to the size of Accenture ($45 billion revenue in 2020) and larger than TCS ($22 billion revenue in 2020). IBM Services, after the Global Technology Services spin-off, is estimated to have a revenue of $23 billion in 2021.

Atos has scaled up by making larger-scale acquisitions. It has previously acquired Siemens IT Solutions and Services (roughly 26,300 employees), Xerox’s ITO business (9,600 employees) and Syntel (23,500 employees, with most of them in India).

With DXC Technology, it will gain scale in the US — something the company has been pursuing in fits and starts over the last five years, often through acquisitions and changes in leadership in North America, Bakalova said.

Size perspective

When asked what could be the impact of the Atos deal on TCS, Peter Bendor-Samuel, CEO of consultancy Everest Group, said: “From a size perspective, yes. It does give them bragging rights. However, the deal will not materially affect TCS’ positioning as an industry leader.”

The potential Atos-DXC entity will be significantly focussed on legacy infrastructure. Although TCS does have a significant infrastructure business, most of it is in apps and BPO. “We do not see TCS and the Atos-DXC firm competing in many areas. Further, the kind of legacy infrastructure in which Atos-DXC will have scale is not a major focus for TCS as it moves forward,” he said.

Published on January 12, 2021

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