Thursday, 20 November 2008

Infosys on Obama, billing rates & Q3

Obama, billing rates, acquisition, currency fluctuations and hiring are some of the hottest issues facing Indian IT industry. And in the current downturn, almost all of them raise concerns.

While Obama raises outsourcing fears, worsening IT situation threatens to affect billing rates and both these seem to be eating into IT sector’s hiring.

So, what is the stand of Indian IT’s poster boy Infosys on these issues. Here’s from the horse’s mouth.

Mergers and acquisitions
Despite the global economic slowdown, Infosys Technologies said it is looking at mergers and acquisitions in Europe and Japan as it would "accelerate growth."

"We are looking at acquisitions and have a dedicated team working on it. We do not make an acquisition based on valuation alone, we will invest and acquire in companies which make strategic sense and are able to integrate in that entity properly," Infosys CEO and MD Kris Gopalakrishnan said.

"We had two focus areas to fill a gap in our services like consultancy, business process outsourcing and geography-based acquisitions, typically in Europe and Japan, where with acquisition we can accelerate growth," he added. He said Infosys wanted to invest in the "right company for the right price."

Gopalakrishnan agreed that the economic situation was challenging and companies working in the non-financial services business were also facing the heat.

"The downturn is global in nature and not just limited to North America. The environment is challenging and the impact is being felt on the whole economy," he said.

According to company’s CEO and MD Kris Gopalakrishnan the economic crunch had not affected the company's hiring plans.

Earlier this fiscal, the software major announced it would hire recruit 25,000 new people this financial year.

However, according to a report published in a financial daily the net additions by TCS, Infosys, Wipro, Satyam and HCL Technologies were nearly 17,000 professionals in the just-concluded quarter, against 26,500 professionals in the year-ago period.

The company which signed 40 new customers in the last quarter has revised its growth rate prediction to about 15 per cent annually. The CEO said he was not very concerned whether the new US administration led by Barack Obama would introduce protectionist measures, offering tax breaks to American companies which do not outsource jobs, as mentioned in the Democrat leader’s campaign manifesto.

Currency fluctuation
Nasdaq-listed Infosys will see an impact on its December quarter revenue from currency moves, its chief executive said.

"Definitely currency movement will have an impact but it is difficult to say what exactly it is," S Gopalakrishnan said.

Infosys is seeing flat billing rates and the company is on track to add 25,000 gross staff in the current fiscal year to March 2009 despite the financial sector turmoil, he said.

India's export-driven software service firms, used to a scorching pace of growth, have been badly hit by a slowdown in the United States, which contributes more than half their revenue, and the spreading global financial turmoil.

Last month, Infosys cut its forecast for full-year dollar revenue growth due to the global turmoil and the rise of the US currency against euro and British pound, even as it beat expectations with a 30 per cent rise in quarterly profit.

IT growth
Infosys said growth in the IT sector will be slower in the wake of the current 'unprecedented' challenges that the world economy is facing but exuded confidence that the sector will bounce back.

"Growth in the IT sector will be slower... There is an overall slowdown which is understandable given the crisis... Infosys Techonologies co-founder Nandan Nilekani said on the sidelines of the World Economic Forum. When we look at the growth of the 4-5 years that is not going to be reproduced... in the current environment it is definitely not going to be of that nature," Nilekani, who is also the co-chairman of the company, added.

Infosys had earlier scaled down its dollar guidance by about 3 per cent for the full year to 13.1-15.2 per cent, perhaps its lowest revenue growth since inception from 19- 20 per cent.

Nilekani, however, said, "I think the IT industry has demonstrated time and again that it is resilient enough to meet the challenges."

“We had a similar situation, though not as profound in 2001, but we not only got out of that but took advantage of that. So I am sure the companies are following the right strategies to wait for the things to subside and take advantage of next cycle of growth."

The Indian IT sector, led by $40-billion software exports besides cashing in on the booming outsourcing opportunity, has been registering 30-32 per cent growth in the previous year, but had shown signs of slowing down under pressure of the credit crunch in the US market which fetches 60 per cent of the revenue. Industry association Nasscom has already scaled down the growth rate to 21-24 per cent.

Allaying fears that the current financial crisis will further impact the IT job market Nilekani said, "Companies will continue to recruit.... we are going ahead with the recruitment. I think it will continue.”

Obama worries
Infosys brushed off concerns that the election of Barack Obama as US president could mean a drop in outsourcing work.

During his campaign, Obama said he would offer incentives to companies that created jobs at home and halt tax breaks to those that ship work abroad.

However, Kris Gopalkrishnan said similar promises were heard during previous presidential campaigns and nothing had come of them. "In the past, when we've seen the mention (of curbing outsourcing) during the campaigns, it did not translate into a change," Gopalkrishnan told reporters on the sidelines of an economic summit. "Of course, we have to wait and see," he said.

At the same time he said it would be a mistake to embark on "reverse globalisation" in response to the worldwide financial crisis by retreating on outsourcing.

"We should continue to support globalisation," he said. "It's one of the opportunities for growth." During the past decade, firms outsourced software development, technical help and other services have benefited India which has a huge pool of talented English-speaking graduates.

Gopalkrishnan said there were signs from some clients that they might decrease their outsourcing budgets but "there are also indications from some clients that they may increase their allocations offshore."

The flagship outsourcing sector, which generates $40 billion in annual export revenues, traditionally views bad economic times as offering potential as Western firms cut costs by moving work to cheaper destinations. The sector has said it expects a similar outcome this time.

Billing rates
Infosys said its pricing has not come under pressure due to the global financial crisis which has hit the bottomline of the country's outsourcing industry.

"Not any trend or anything like that," Infosys Kris Gopalkrishnan said on the sidelines of the World Economic Forum's India edition when asked about if the company has witnessed any pricing pressure under the current global financial meltdown.

The Indian IT sector came under pressure following the meltdown in the US market which contributes nearly 60 per cent towards the software exports. He further said the slowdown has not only affected the IT sector but the retail, manufacturing and other sectors as well.

"The slowdown is affecting is not just impacting IT services industry but everyone," he added. "We are still adding people. We will be recruiting 25,000 people this year gross and we, from a client perspective, have added good number of clients in Q2 and we still see opportunities in the market."

However, he said everything is not negative. "We are still seeing new business," he added.


ramabadran seshadri iyengar said...

Infosys will outperform prediction because of dollar appreciations. Their Q3 results will be out in next 48 hours. This is the only best managed, following strictly IT governance company in the world. Due to fallen of Satyam fiasco Infy will be benefited more. Future will be good for Infy in all angles.