Strong demand for AI, cloud boost Black Box's growth
Even as most Indian IT services providers struggle to keep up growth in the face of flagging demand, there's one relatively smaller player that is latching on to the rising demand for cloud computing and artificial intelligence - Black Box Ltd.
The company specializes in designing, building, and managing digital infrastructure, particularly data centers -- the enormous warehouses that contain stacks and stacks of high-performance computers.
Data centers are the primary ingredient in any cloud and artificial intelligence business as they are the only way to provide assured and high-capacity compute and storage facilities. As demand for such applications rise, Black Box is pivoting more and more towards the data center market.
The company is now a major partner for three out of the top five hyperscale data center operators -- Amazon, Google, Microsoft, Meta and Apple.
Black Box initially started as an IT services provider for the likes of AT&T, Vodafone and Boeing, and soon won a large social media company as a client. It is now increasingly focusing on the data center business, particularly the hyperscaler segment.
"The data center market, propelled by the influence of hyperscalers and cloud providers, is poised for substantial growth in the coming years...Our data center business pipeline, which was $200 million or $300 million a few quarters back, stands at about a billion dollars now," said CEO Sanjeev Verma.
"The advent of 5G, IoT proliferation and increasing AI adoption is leading to plans for next-gen data center builds both in North America and our international markets...Our overall pipeline stands at around $2 billion, the highest ever," he pointed out.
The strong deal momentum in data center and cloud is in contrast to delays in decision making in most enterprises around traditional IT projects, such as upgrades and overhauls.
However, data center projects have grown to contribute about half of the company's order pipeline. At the same time, dampening impact of traditional IT has constrained the company's revenue growth in the third quarter to only 5%.
The management, however, expects to hit double-digit revenue growth in the year starting April due to strength in networking, data center and cloud segments.
Meanwhile, Black Box has managed to significantly expand its profitability over the last year even as revenues have remained tepid. EBITDA has grown by 75% Y-o-Y in the 9 months FY24 period on the back of structural cost optimizations and productivity gains. The company hopes to sustain this momentum going forward, with an EBITDA margin target of 10% in coming quarters.
The company's shares are being traded at Rs 278.70 on the National Stock Exchange today, up 3% compared to yesterday.