Can Infosys snd TCS benefit from cybersecurity demand in USA after Russian hack
The major infiltration of the information technology (IT) systems of 18,000 business and other entities, mainly in the U.S., by Russian hackers offers major business opportunities for IT companies which operate in the U.S.
The hack, named SUNBURST and which was discovered last month, is lifting demand in three areas: protecting and cleaning or replacing infected systems; new security systems to prevent future hacks; and back office and other IT services for U.S. firms being shifted from Eastern Europe to the U.S. and perhaps Canada.
The demand for protecting and cleaning infected IT systems, which has risen immediately, will not directly benefit Tata Consultancy Services, Infosys, Wipro and Tech Mahindra, all major Indian IT firms, with operations in the U.S. This is because they have little or no reputation in the field.
The hackers in Russia used network software from U.S. based SolarWinds to infiltrate the systems of SolarWinds customers. The malware, which gives the hackers in Russia the ability to control the infected U.S. IT systems, is deeply embedded. So, protective patches provided by SolarWinds, Microsoft and other vendors may offer only a temporary solution.
Also, given the deep embedding, cleaning the infected systems will be expensive and perhaps not effective, say IT experts. The victims, which include Fortune 500 companies as well as the Justice Department and other U.S. government agencies, may have to entirely replace their infected IT systems. This will boost demand for a wide variety of IT systems. But it may be a few years before companies and government agencies can afford to spend the large sums required.
There is a surge in demand for IT security systems to try to prevent future hacks. This business, which requires advanced technology capabilities, is dominated by Palantir, with a market value of $46 billion, Palo Alto Networks ($36 billion), FireEye ($5.5 billion), and other U.S. companies.
The hack likely occurred through software from JetBrains which is used by SolarWinds as well as 79 of the Fortune 100 companies and 300,000 other businesses. JetBrains, founded by three Russians, operates from the Czech Republic with research labs in Russia.
Consequently U.S. companies are demanding that their IT systems and service providers include no input from Eastern European and other countries. where hackers from Russia, or China or Iran, may be able to gain access.
This requirement, and the upcoming demand for new IT systems, could boost the U.S. operations of the major Indian IT firms - assuming they are keen to pursue it.
Tata Consultancy Services (TCS) has over 21,500 employees in the U.S., including over 5,500 in Texas. TCS says that only 8% of its employees in the U.S. are college graduates. Running a major IT business with such a small number of college graduates would be odd. However, TCS is reported to have an additional 22,000 employees in the U.S., engineers and other skilled staff from India, on H-1 temporary skilled-worker visas, not included in the official U.S. employee count.
Infosys has over 13,000 employees in the U.S., in Indiana, North Carolina, Connecticut, Rhode Island, Texas, and Arizona. Wipro has over 1,000 employees in the U.S., with major operations in the Silicon Valley, Dallas, Tampa, Indianapolis and Atlanta. But that figure is from 2017 and, since then, Wipro appears to have not publicly disclosed its U.S. employee count.
As with TCS though, Infosys, Wipro and Tech Mahindra hire a sizeable number of additional employees in the U.S., who are from India on H-1 visas. In 2020, a total of 80,000 Indians were employed on such temporary skilled work visas by Indian IT companies in the U.S.
Critics say that the Indian IT firms pay far lower wages to their Indian employees on H-1 visas, compared to what equally qualified Americans are being paid. President Donald Trump imposed several restrictions on granting temporary skilled worker visas.
The Indian IT firms are fairly large businesses. In fiscal year 2020, TCS revenues reached $22 billion and it has a market value of $138 billion. Infosys, which has a market value of $73 billion, had $12.8 billion in fiscal 2020 revenues. Wipro’s fiscal 2020 revenues were $8 billion and it has a market value of $33 billion.
But given their legacy, the operations of Indian IT companies in the U.S. appear to continue to be focused on enabling clients to reduce their costs and not on selling new systems and services. This is reflected, for instance, by the sizeable number of lower-paid H-1 visa employees they hire in the U.S. from India.
So, its an open question if the Indian IT firms will seize the opportunity, arising from the Russian hack, to expand their operations in the U.S. and benefit from the rising demand for more profitable new systems and services. Or, will they stick to providing lower profit margin, cost-cutting services to American firms?