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wipro: Wipro’s $1 billion AI play will be self-financed: CEO Thierry Delaporte

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The task of transforming Wipro and putting it back on the growth path “is still work in progress”, said chief executive Thierry Delaporte. In an interview with ET’s Sai Ishwarbharath and Surabhi Agarwal, he said Wipro is betting big on artificial intelligence. Edited excerpts:

Q: While most IT companies have spoken about a tough demand situation, what explains Wipro guiding for a revenue decline in the current quarter as well?

A: The current economy has driven a slowdown across industries–more pronounced in some industries like BFSI (banking and financial services), which is a third of our business, and in technology, which is another 12% or 13% of our business. From a market standpoint, (it is) more pronounced in America than in Europe or in Asia Pacific. A slowdown is there, and it is showing in the discretionary spend. Those are typically smaller orders and volume of small deals have actually reduced.

But our volume of large deals has actually expanded. We have also had three super-strong performances in bookings in total contract value (TCV) terms, better than ever before. So there is a volume of business, but the nature of the deal has evolved, because discretionary spend has been cut because clients see the uncertainty. They aren’t sure where the economy is going to go. So they are really careful.

Yes, we have shown a decline in revenue. The range of 3% (-2% fall to +1% growth) shows also the level of uncertainty. It could actually go one way or another. It’s just not a growth market right now. Let’s face it. But no one (other IT companies) will do 3%-plus (in terms of sequential revenue growth). So, that is the context we are in. (But) it’s absolutely okay, and when the growth will resume, (we) will be completely on top of it.

Also read | Wipro’s Q1 net profit up 12% to Rs 2,870 crore, misses estimates

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Q: You have announced a $1-billion investment in artificial intelligence. Where will it be invested?A: The $1-billion figure will be invested over three years. (It is) to enhance our capabilities, solutions, platforms, assets and offerings around AI for our clients and for ourselves. Those investments will be primarily organic–around 75% of it will be organic, 25% may come from acquisition. We will also leverage Wipro Ventures (investment arm that invests in early- and mid-stage startups) that is quite active.

Also read | Wipro announces new AI strategy, to invest $1 billion in three years

Q: How will it be funded?

A: Money is coming from all the drivers of productivity gains that we are focusing on. We have made tremendous work to be more efficient, leaner as an organisation. We have reduced the percentage of overheads (expenses) in the organisation and improved the quality of our delivery dramatically.

Remove the impact of the acquisitions and look at our margin profile over the last (few) quarters. We have improved by 110 basis points this quarter and we will continue the upward trend. Despite injecting (investments), there will be something like $250 million for the AI programme this year, which is in itself a significant investment–self financed by operations.

Q: What is the nature of large deals, and are you seeing a delay in conversion to revenue?

A: The nature of the large deals–they are driven by cost optimisation, cost-rationalisation and simplification of systems across companies. There is some consolidation work, as well as companies are reducing the number of suppliers.

But there is no inconsistency between winning large deals, and actually having a revenue profile.

But discretionary spends are typically deals that you are signing for one or two quarters. The number of orders (in discretionary space) has reduced, but the average size of order has dramatically improved. It’s not contradictory, but actually two trends happening at the same time.

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Q: Are most of the large deals in the market coming at a lesser margin rate?

A: At Wipro, we are very careful (when) we look at the deal margin profile. I wouldn’t go for a large deal with a lousy margin profile. I’m just not interested. It has to make sense. I don’t want us to buy deals now that we would regret in a couple of quarters.

When you are assigning a low margin deal with the client, the temptation of the team is to not mobilize the best players for this project. I want to put my best players on the large deals. It’s a completely different approach.

Q: Why is there a fall in banking and financial revenues this quarter? Is there more pain left?

A: The BFSI sector has been investing a lot in technology. It’s an adjustment of this unusual surge of the last (few) years that we are seeing now. It will go back rapidly. As part of my clients I have met this weekend, I have seen several bankers. They all expect to resume some programmes soon.

Q: You have done a lot of restructuring at Wipro since you took over three years ago? Is it complete or are there more areas that need work?

A: When I designed this plan three years ago, it was a plan that was going to take us over several years. So we are still on it. I would say probably we have done a significant part of it. Are we at 50% or 65% of completion? I don’t know, but I think we are well advanced, but we are still to go. I feel that the transformation will continue until times where we reach a solid and improved profile of margin.

Q: Which are the areas you think need more work?

A: I still see a lot of potential in our operational excellence and, hence, the need to continue to invest in our own IT landscape. I still see a lot of potential in the way we are investing and developing our capabilities in the high-growth areas and, hence, the investment made in AI. Imagine that all these investments in AI, including the $1-billion investment, will trigger a massive business for us.

We are already ahead, in my mind, of many in the AI space. But with this plan, it will take us to a fantastic position in some years.

Q: What is your merger and acquisition strategy now?

A: Same strategy for the last three years. Yes, M&A is part of our strategy to complement and accelerate in strategic areas. It may be in an industry or around a certain technology. So it may be around AI, in the healthcare or life science sector. It could be in our marquee markets in America or in Europe or in some of the countries in Asia. We will continue to go for acquisition when it makes sense from a strategic standpoint.

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