Infosys financial results disappoint analysts

Despite signs of recovery in the outsourcing industry, Infosys is not changing fast enough, analysts said

Indian outsourcer Infosys Technologies has reported growth in revenue and profit for the quarter ended March 31, but analysts remain concerned that the company's risk-aversion and impending management changes may slow it down in comparison to competitors Tata Consultancy Services and Cognizant Technology Solutions.

Infosys reported revenue for the quarter of US$1.6 billion, up 23.6 percent from the same quarter last year. Net profit for the quarter was $402 million, up 18.9 percent. Revenue for the fiscal year ended March 31 was up 25.8 percent from the previous year.

The revenue reported was, however, at the lower end of the guidance Infosys provided in January, disappointing analysts. The company is traditionally known to beat the guidance it provides, said Jimit Arora, research director at Everest Group. The stock market too was disappointed: the price of Infosys shares on Indian exchanges fell by more than 8 per cent on Friday after the company announced its results. Shares of other outsourcers also went down.

Infosys had robust growth in the quarter in North America, its largest market, in its large verticals, said Ashok Vemuri, senior vice president and global head of the company's banking and capital markets practice. But there was seasonal softness in the quarter, compared to previous quarters.

The European market has picked up well, despite the debt crisis, as customers have recognized the need to invest in technology to be competitive, Vemuri said. These customers find themselves lagging in technology investment and in globalization, he added.

Infosys may however not be able to take advantage of opportunities in the outsourcing market because it is too conservative and risk-averse, according to analysts.

The company is not changing itself quickly enough in response to customer requirements, said Sudin Apte, principal analyst and CEO of Offshore Insights, a research and advisory firm in Pune, India. Customers want their suppliers to be more involved in transforming their business, and want them to offer flexibility and new engagement models linked to business outcomes, he said.

Although Infosys has recognized the changes in the market, it has been slow to change as an organization, in contrast to some of its competitors, Apte added.

In the quarter ended December 31, its two rivals, Tata Consultancy Services and Cognizant, posted revenue and profit growth that was higher than that of Infosys in the same quarter. The two companies will be announcing shortly their results for the quarter ended March 31.

Vemuri does not agree that Infosys has been slow to respond to changes. There are a lot of new ideas about models for engagement and pricing, and customers are still trying to understand and evaluate them, he said. Often customers themselves decided not to change to a new model, after evaluating the implications, he added.

Infosys has forecast that revenue in the quarter ended June 30 will grow by between 21 to 22.2 percent to about $1.6 billion. Revenue for the year is expected to grow by 18 to 20 percent to over $7 billion. The company reports its results in accordance with International Financial Reporting Standards (IFRS).

Infosys added 3,041 employees in the quarter, taking the total number of employees at the end of the quarter to 130,820.

The company will also see a change in management later this year, as the company's chairman of the board and co-founder, N.R. Narayana Murthy retires. Infosys knows how to manage succession without disrupting its business, Arora said.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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Tags outsourcingbusiness issuesservicesfinancial resultsoffshoringInfosys Technologies

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John Ribeiro

IDG News Service
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