As AI rocks tech boat, ER&D may promise an island of calm

Amid the tempest of AI rocking the technology world, a niche segment maybe emerging as an island of calm.

- Jas Bardia

Technology companies that build hardware and the software to go with it will suffer less from disruption, multiple company executives and technology analysts said, since much of their work goes into researching and building physical products for sectors ranging from aerospace to automobiles. The complexity of integrating mechanical engineering with software creates a layer of complexity that AI models cannot yet replicate.

“Engineering, research and development (ER&D) firms are least likely to be impacted as these firms have lower coding-led revenue in their mix vs pure-play IT services,” said ICICI Securities analysts Ruchi Mukhiia, Seema Nayak and Aditi Patil, in a note dated 20 February. According to the analysts, these firms are harder to automate for four main reasons: they perform fewer repetitive tasks, their projects require deep mechanical expertise, every client's needs are unique, and the high-stakes nature of the work makes human oversight essential.

Some of India's leading ER&D firms include L&T Technology Services (LTTS), Cyient and KPIT Technologies. The three companies ended last year with $1.26 billion, $870 million, and $691 million, up 8.16%, 0.81%, and 17.72%, respectively. The three companies design and build technologies and products for electronics companies, carmakers, airplane manufacturers and defence companies.