Infosys In Light of Recession Fears
The general feeling of the West has been that the rise of the rupee would slow down the immense growth of business being funneled into India. The reality is that growth continues to boom in India, barely slowed by currency exchange rates. The short term looks alright for Infosys (Nasdaq: INFY).
Infosys’ Q3 revenues posted at $1.084 billion, a YoY increase of 32% compared to the same quarter in 2007 and a 6% increase versus the previous quarter. Net profit is expected to post at $299 million, up 7% from Q1 and 20% higher YoY. The boost in revenue was attributed to the 47 new clients that were added in Q3. Guidance forward into Q4 expects Infosys to earn between $1.136 and $1.142 billion in revenue and between $4.17 and $4.18 billion for the fiscal year in total. Liquid cash balance exceeded $2 billion.
The stock, however, is getting hit because of the CEO’s comment that deals are taking longer to close.
With the U.S. recession looking somewhat definite, the future seems cloudy for continued revenue growth in the neighborhood of mid 30%. However, it has also been historically true that as businesses experience slowdown in the US, they move more and more of their operations off-shore, to the benefit of Infosys and others.
Infosys continues to gain business due to market slowdowns and tighter operating cost limitations on businesses in Western countries. However, the mega-deals are dropping in number and taking longer to close. There is also an increasing expectation on what is dubbed mature outsourcing, creating a demand on Infosys and competitors to provide the right mix of onsite and offshore services, including more strategic consulting.
In light of this, Wipro is in a $7 Billion acquisition discussion with Cap Gemini. Should Infosys merge with Accenture?
I don’t think so. I have said that the time has come for Infosys to take a good look at the software eco-system in the US, and decide on a strategy that enables them to play in the more leveraged technology / IP driven business models, and change the business mix. The pure body-shopping business needs to start looking at including SaaS, for example.
In fact, in Trend radar 2008: SaaS in the Enterprise, I highlighted the example of manual BPO businesses being replaced by SaaS, a trend that puts Infosys squarely at risk.
In Trend Radar 2008: Offshoring, I highlighted the concern that India’s cost advantage in pure labor arbitrage would disappear over the next 5 years.
Infosys needs to put in place diversification strategies asap to fortify itself against these two key threats.
Is this so easy?
I mean, SaaS is nowhere in the company’s DNA…
Technology Consulting…yes…they are certainly doing it, and trying to expand it…
Hi,
I would be surprised, If Infosys didn’t see this coming. However, i don’t see any visible changes happening from Infosys side in terms of their business model for future survival.
If they are not planning to shift their gears, then the only alternative to remain competitive and continue to beat street estimates is to
a) Lay off employees in India which will be hugely unpopular.
b) Hire more in West.
c) Start winning state projects in INdia and in the far east.
If they don’t, then IBM one day will beat Infosys, Wipro and TCS together.
The advanatge IBM has over Indian IT majors is Enterprise products and they can definitely beat the competition in terms of pricing power.
–sri
[…] numbers might look rosy for the quarter, but the management is aware of pressures of the recession ahead. Their revenue growth for the quarter slipped to 5% compared to the 6% reported in the previous […]
[…] at $39.67 for the day. Its numbers might look rosy for the quarter, but the management is aware of pressures of the recession ahead. Their revenue growth for the quarter slipped to 5% compared to the 6% reported in the previous […]