Infosys (INFY) announced their Q4 results yesterday. For the quarter, they met analyst expectations with revenues of $1.14 billion and EPS of $0.54. Their revenues reported a 32.3% increase over Q4 previous year, while EPS grew by 20% over the period. Their revenue for the year reached $4.18 billion. For the first time ever, their net profits for the year crossed $1 billion.
Region wise, revenue share from Europe increased to 29.3% for the quarter versus 26.6% for the year before. American revenue contribution reduced from 62.6% in Q4 previous year to 60.7% in the current quarter. Revenue share of the rest of the world reduced from 10.8% the previous year to 10% in the current Q4.
Segment wise, Application Development and Maintenance (ADM) contributed 45% to the quarter’s revenues. In the previous year Q4, ADM had contributed 46.3% to revenue. Consulting Services brought in 24.1% of the revenues for the quarter compared to 22.7% for the previous year. Business Process Management contributed 6%, Infrastructure Management 4.6%, Product Engineering Services 1.8%, System Integration 3%, Testing Services 7.2% and others contributed the balance 4.4% of their revenues for the quarter.
Going forward, for Q1 they are expecting revenues of $1.142 -$1.145 billion representing a 23.1 – 23.4% year on year growth with earnings expected at $0.52 or 18.2% higher. Analysts were expecting revenues of $1.18 billion with $0.52 EPS.
For the year, they are expecting a 19-21% growth in revenue to reach $4.97 – $5.05 billion, and a 16.7 – 18.7% growth in earnings to reach $2.31 – $2.35. The market was expecting higher revenue of $5.23 billion with EPS of $2.36.
Infosys’ reported financials sent its stock to a 10% intra-day increase. The stock closed 8.5% higher 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 quarter. They have witnessed delay in decision making, and even cancellation of a few projects.
While the short term looks rosy, the long term appears less so. I have repeatedly said that Infosys needs 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.” But, so far, I have not seen IP-driven acquisitions as part of their strategy.
They continue to talk about the advantage of their ‘global delivery model, consulting and solution capabilities, and a strong platform for customers.’ However, in the increasingly diverse globalization trends, China, Eastern Europe, Latin America, and other countries would become bigger factors, which their competitors like IBM and Accenture have more experience handling.
I am not convinced about their ability to cope with the declining labor cost arbitrage advantage longer term. In my highly controversial Death of Indian Outsourcing series, I have highlighted the impact SaaS can have on pure body-shopping. Infosys needs to migrate out of pure body shopping, and start investing heavily into SaaS and IP.
As Mastek CEO Sudhakar Ram writes, India is in Wave 3 of IT outsourcing. Where is Infosys’ Wave 3 strategy?