Infosys sees revenue grow more slowly than hoped

Infosys said customers were frequently revising their IT spending because of economic uncertainty

Infosys' revenue in its fourth quarter and full fiscal year ended March 31 fell short of guidance, as global markets for its services are recovering very slowly, the company said Friday.

The company's guidance for the current fiscal year is also muted, citing a challenging year ahead for the IT services industry.

Infosys reported revenue of US$1.77 billion for the quarter, up 10.5 percent from the same quarter last year, in accordance with international financial reporting standards. Net profit was $463 million, up by 15.2 percent. The company had in January forecast revenue of over $1.8 billion.

Some programs with clients did not ramp up as expected in the quarter, and some existing projects got terminated prematurely, as customers reviewed their funding on IT as they coped with a fast-changing business environment, said Ashok Vemuri, Infosys' head of Americas and global head of manufacturing and engineering services.

"We had situations where projects got cancelled in the U.S. because of bond yields in Spain going up, or riots in Greece, or some political development in China," Vemuri said, emphasizing the uncertain times for Infosys and its competitors.

Some spending related to regulatory compliance in the financial services market also got delayed as regulators gave customers more time and leeway to implement, Vemuri said. Financial services companies are not doing as well as they are made out to be, he added.

Revenue for the fiscal year was close to $7 billion, up 15.8 percent over the previous year, but a little short of Infosys' earlier revenue guidance of over $7 billion for the year. Net profit for the year was up 14 percent at $1.7 billion.

The company billed 71 percent of its revenue in the quarter in dollars, with the rest in euros, U.K. pounds and Australian dollars. North America accounted for over 62 percent of revenue in the quarter.

Indian outsourcers including Infosys have emerged as the country's megastars, consistently delivering high revenue and profit growth, and improving on their own guidance.

Soon after Infosys announced that it expected its revenue growth in the current fiscal year would be between 8 and 10 percent, lower than the 11 to 14 percent growth the National Association for Software and Services Companies (Nasscom) has forecast for the industry, investors beat down the price of Infosys shares on the Bombay Stock Exchange by over 9 percent at the beginning of trading on Friday.

The growth in the market for Indian outsourcers is very slow, as customers are still very nervous about economic conditions, said Sudin Apte, principal analyst and CEO of Offshore Insights, a research and advisory firm in Pune. Although some customers have finalized budgets, that does not translate necessarily into spending, Apte said.

Infosys also has additional problems including uncertainty after organizational changes at the company, and a declining image with customers, he added.

The company however continues to expand despite a difficult market, adding 4,906 employees in the quarter. Its total number of employees at the end of March was 149,994.

Infosys added 52 clients in the quarter, as it attempts to focus on more value-added services. It has 12 new wins in its product and platform business which aims to develop and license intellectual property to clients. It has close to 140 engagements and 3,000 experts in its cloud practice.

Indian outsourcers are not only competing with one another and other IT services company but Internet companies like Google and Amazon Web Services that could potentially compete with them in the area of cloud, storage, collaboration and infrastructure services, Apte said. There are also small boutique companies that bundle these technologies to deliver services to niche industries, he added.

The Indian companies are also finding it difficult to raise visas to send staff to the U.S., its key market, but that did not affect Infosys as it has enough visas in hand, and has a program to hire locals, Vemuri said. The company's dependence on visas from the U.S. is also reducing as its business in other markets grows, he added.

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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John Ribeiro

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