Infosys tries to lower dependence on U.S. deals

Indian outsourcing giant Infosys Technologies is working to decrease its dependence on U.S. customers through faster growth in other markets, its chief executive said Wednesday.

"From a geography perspective, Europe seems to be positive, Australia is also positive," S. Gopalakrishnan said.

This is partly because Infosys is investing in those markets and also because these regions are catching up with the United States in outsourcing work.

"They have suddenly woken up to the fact they need to become more aggressive in leveraging this globalization phenomena," Gopalakrishnan said.

Gopalakrishnan added that although the business environment is currently more positive in Europe than the United States, U.S. clients are saying they will increase their offshoring if the U.S. economy slows down.

"We're not seeing any slowdown in terms of deals from the U.S. yet, but we have to wait and see," he said.

About 60 percent of the company's revenue comes from the United States, while Europe's contribution is 26 percent and growing rapidly. Nasdaq-listed Infosys would like to see 50 percent of its revenue coming from the United States, 30 percent from Europe and 20 percent from the rest of the world, although this is not a time-bound target.

"We are close to that, but not there yet. There are no target dates," Gopalakrishnan said.

Infosys, India's second-largest software services exporter, could raise billing rates by 3 to 4 percent for new contracts and 2 to 3 percent for existing contracts, Gopalakrishnan added.

Original Story

No subprime impact: Infosys

When the top Infosys management visits Mumbai, it is clear that they want to calm some investor nerves. With banking, finance and insurance as a key vertical, everyone wants to know whether the subprime meltdown in the US markets is going to hurt.

"Our exposure to subprime industry itself is less then 0.5 per cent, so its very less exposure and we are in touch with our clients. Clients are not telling that there is an issue or thing like that, so it does not look at this point of time to be very significant," said Kris Gopalakrishnan, CEO & MD, Infosys Technologies.

So no worries for Infosys then and certainly no noise of reducing how much it will earn, what investors like to call the guidance.

However, tough times are around and with a slowdown in the US imminent, it is clear that IT budgets will come down but that is also a time to hike its dollar rates.

Rupee appreciation

"As long as Rupee appreciation is gradual companies are learning to manage that. In fact, Rupee appreciation is of something new, from 2003 onwards Rupee has been appreciating at about two per cent every year. We have sustained margin inspite of growing cost and things like that. It was only in Q1 because appreciation was significant there was an impact," said Kris Gopalakrishnan.

Besides, it is looking to increase revenue share from non-dollar geographies like Europe that's where the recent acquisitions like that of Philips' BPO fir in.

Over a period of time Infosys wants to scale down US revenue share to 50 per cent from the current 60 per cent and increase Europian share to 30 per cent from the current 26 per cent. And rest of the geographies contributing almost 20 per cent including Latin America and China.

Infosys management says that historically the IT services companies have eventually benefited from the economic slowdowns in the western countries like the US.

But then their is an intermediary period before the outsourcing cycle kicks in all again, clearly the upcoming quarterly numbers of the company will be under a lot of pressure.

Original Story

Infosys to open unit in Mexico

Information technology major Infosys Technologies today said that it would soon open a 200-seater BPO facility in Mexico, its first in Latin America.

The company is also looking at other countries to start such units. “As we speak, we are in the process of moving into our own office. We have taken the office. It will be operational very soon”, company CEO and managing director Mr S Gopalakrishnan told here today. “Right now, we are looking to start with approximately 200 seats”. Primarily, the centre will focus on BPO. We will monitor the growth and then we will look at starting other services from the unit,” he added.

The NASDAQ-listed IT and consulting major has just opened a 60-seater BPO facility at the Philippine capital of Manila which will be ramped up to 700 seats in an year’s time.

Infosys Head (HRD, education and research) Mr TV Mohandas Pai, said “Mexico is closest to the US in the time zone and American clients are very familiar with that country. There is a good emerging employee pool there.” Infosys, which has a employees of around 65 nationalities, is also scaling up hiring of locals.

Original Story

Stand by for a big Infosys acquisition

Earlier this week, Wipro announced that it would acquire Nasdaq-listed IT infrastructure management firm Infocrossing for $600 million in India’s biggest software acquisition overseas so far. Wipro has long spoken of a “string of pearls” strategy for acquisitions, and that usually meant buying small overseas companies to either gain customers or competencies, which in turn could be linked to operations in India to provide cost-efficient services to customers.

But then, at 600 million US dollars, the latest pearl must be the size of a football. That big an acquisition is happening now because this seems to be the ideal time for an Indian company to go shopping abroad. And I do believe Infosys is ready to make a big purchase now.Rumours have been rife in the markets for a while now that Infosys may try and get Capgemini to build its European market while Capgemini itself acquired US-headquartered Kanbay, which has a strong presence in India. London-based Xansa was also said to be an Infosys target, but is now being acquired by Steria, another European player.

The story is quite simple. Foreign companies who have missed out on the Indian software party are buying capacities to have a strong presence in India, while Indian players make Western acquisitions either to get juicy customers from the companies being bought, or to acquire specialised competencies and relationships with regard to technical skills or consulting capabilities.

Companies like Accenture and IBM have been hiring away in India, matching Infosys and Wipro in wooing skilled engineers. The job market is getting tight, with salaries going up and managers difficult to find. Meanwhile, the rupee has become stronger, eroding profit margins for software service exporters like Infosys.

Now, consider the fact that Infosys is hiring about 24,000 employees in the current fiscal year. This means it is building capabilities to execute orders. Infosys has often said that it does not propose to use acquisitions to build capacities. Being good at training and managing young fresh graduates, Infosys essentially looks for acquisitions to give strategic headroom to acquire big-ticket customers. In Australia, it paid about $23 million to buy Expert Information and last month, it said it would pay $28 million to take over the business process outsourcing (BPO) operations of Philips which would bring with it a $250 million outsourcing contract.

Infosys could do with some consulting muscle and more big-ticket customers.

The Bangalore-based company is sitting on a huge cash pile of about $1.6 billion (Rs. 6,350 crore)! Nandan Nilekani, Infosys’s executive chairman, has long maintained that cash is a “strategic asset” but at some point, I suspect it becomes a strategic liability.

Infosys does not invest in stock markets, its venture funding has not proved too good, and returns from bank deposits and liquid mutual funds are too low. The best thing for Infosys is to either return some cash to its shareholders, buy real estate to build facilities (which it is already doing) or else, go for acquisitions.

This week, the government clamped down on external commercial borrowings (ECBs) to stop the rupee from appreciating further. The rupee, which was 44 to a US dollar at the start of the year, is now at Rs. 40.5, and that means anything bought overseas is nearly 10 per cent cheaper.

This could be the best time for the company to shed its trademark south Indian conservatism and do some big-time shopping. I expect it to happen sooner than later.

Original Story

US IT spend to rise, Indian cos say amen

MUMBAI: IT investment and spending is set to rise in the US, according to a forecast by Forrester Research. This may be good news for Indian vendors hurt by the rising rupee and worries of troubles in the sub-prime lending space spilling over into other areas.

“With a moderate tech investment slowdown mostly behind us, the tech sector should experience improving prospects in the second half of 2007. We expect that the next wave of technology innovation and investment will kickstart in 2008. The steady improvement in tech investment in the third and fourth quarters of 2007 will set the stage for an even better 2008,” the report by analyst, Andrew Bartels, and his colleagues said.

The US has been witnessing a slowdown in spending on computer and communications and to a lesser extent in areas such as IT services and outsourcing. The demand environment for Indian IT firms, however, has been strong and this was re-affirmed in the current quarter where the tech leaders posted strong growth from the North America region.

For Infosys Technologies, North America revenues were at 62.6 per cent of its total revenues, unchanged from the previous quarter, and for Tata Consultancy Services up from 51 per cent to 61 per cent. Even smaller players, such as Tech Mahindra, with British Telecom as it largest client, maintained US revenues at 19 per cent of total revenues, unchanged from the previous quarter even as its revenues grew.

“As has been true for the past two to three years, the Indian vendors of Infosys, Tata Consultancy Services (TCS), and Wipro outpaced the rest of the industry,” the Forrester analysts noted.

Sector-wise, in the first quarter of 2007, the computers and peripherals saw a fall in demand, while growth in communication equipment was flat. Software witnessed as healthy demand of 11 per cent, while services saw a 6 per cent growth.

As the slowdown tapers off, Forrester predicts that IT services spends in the US will grow by 8 per cent in the second quarter, as will spends on computers and peripherals. Software and communications equipment are predicted to grow 10 per cent and 9 per cent respectively. However, the analysts did not totally rule out the possibility of a recession threat.

“The depressing effects over time of a slumping housing market on consumer spending could turn out to be greater than they have been so far. A spike in oil prices could drive gasoline and heating oil prices back to the peaks of 2006,” the report said.

IT firms move closer to clients

With the strong rupee eating away profits, Indian IT companies are increasing their manpower count closer to client locations in order to grab projects that offer higher margins.

Recently, Infosys co-chairman Nandan Nilekani, after stepping down as CEO, said he would now be based in the USA and spend more time working out new business models, negotiating for projects with higher rates and more high-margin deals around Infosys Consulting. TCS, Wipro and Satyam Computer Services are all increasing their on-site efforts through deployment of additional manpower.

In the recently announced results, TCS global head of human resources S. Padmanabhan said the company added about 1,000 employees across all its global subsidiaries, which number about 150, and a majority of them would be groomed to be the “face of the company”.

Infosys, through its global internship programme, has trained a couple of batches of 200 workers from different countries who will be groomed to undertake different roles in their respective locales.

"Deploying manpower on on-site locations is not something new, but projects with good margins are increasingly a mix of onsite and offshore," says Ram Mynampati, board member and president, commercial and healthcare business of Satyam.

Industry experts believe that as Indian IT majors have aspirations to be global consulting companies, then it is crucial to have a diversified workforce and a lot of times with nationals who are familiar with market conditions. "Earlier, if a company outsourced work to Indian companies, it was not basic run-of-the-mill stuff. Now, as Indian companies are looking to move up the value chain, with higher billing, companies want to have a touch-point in their respective locations," says William McArter, president of Mastek's US operations.

Recently, all IT majors have offered wage hikes for employees who are deployed on-site and are asking them to service more than a single client. "Earlier, if an employee was servicing a single client, now two employees are being asked to service three clients," says Pradeep Mukerjee of Tholons, an offshore advisory firm. Analysts also see this increase in employee productivity as a move to counter international software companies such as IBM, EDS and Accenture who score higher on this front.

Infosys to buy Philips Global's finance BPO

Aravind Gowda, Bibhu Mishra & G Balachandar / Bangalore/Chennai July 17, 2007

IT major Infosys Technologies is set to acquire Philips Global’s finance and accounts BPO for an assured revenue of $200 million spread over five years.

Infosys will be taking over the subsidiary along with all the costs in the similar manner that TCS had acquired the operations of the Pearl Group in the UK.

According to informed sources, once the takeover is completed, Infosys will bring down costs and restructure operations to make it a paying proposition.

This will be Infosys’ second acquisition in its 25-year history, after it had acquired Expert Information Services in Australia for around Rs 104 crore ($22.9 million) in 2003.

The acquisition of Philips will bolster the capabilities and reach of Infosys’ BPO, enabling it to deliver round-the-clock. Philips’ F&A captive has operations in Chennai, Warsaw (Poland) and Bangkok. The global staff strength of the captive is around 1,500 with 500 employees working out of the Chennai centre, which was set up in 2004.

Infosys’ BPO has close to 11,000 employees and has posted a top line of around Rs 662 crore and a net profit of Rs 151 crore in FY07.

Infosys, the country’s second largest software services exporter, currently has cash reserves of $1.4 billion. No official comments were available from the company. Usually conservative in the M&A game, the company has grown to $3.5 billion and employs around 71,000 professionals.

In the recent past, it was rumoured to be bidding to acquire Capgemini. The company officials have predictably been non-committal and maintained that they will go ahead and acquire it, if it fits into the Infosys’ game-plan.

Scouting for small buys: Infosys CFO

Infosys CFO V Balakrishnan has a tough job at hand. Rising attrition, wage hikes, rising rupee and more taxes, all are trying to hit the Infosys balance sheet. But despite the rising rupee, Infosys managed its reputation of beating analyst forecast and delivering higher bottomline and topline growth. He talks on the problems the company is facing due to the rising rupee and related issues.

By how much has the rupee hurt Infosys balance sheet this quarter?

Our net margin in the past quarter (Q4 FY07) was about 27%. In Q1 FY08, our margins were hit by 7%. Wage hikes (of 12-15% offshore and 5-6% onshore) eroded margins by about 2.5%. A hit of about 1% was suffered due to the visa costs. But an appreciation of 6.8% in the rupee gave us the maximum hit, of 3.5%. However, better employee utilisation and flexible financial model enabled us to overcome it. All our subsidiaries are doing well except Infosys Consulting and Infosys China which are in losses. In IT services, we have a natural hedge with about 26.2% revenues coming from Europe vis-a-vis 64% from North America.

But you decreased your rupee EPS guidance for the year?
We increased our dollar guidance but decreased the rupee guidance to factor in hit due to the rising rupee. Nevertheless, we have hedged for almost $925 million. But hedging can only curtail the hit by currency appreciation to a certain extent. We are trying to increase our geographical spread and increase our non-dollar clients.

Should the government do something to curtail the rupee rise?

The government cannot control inflation, interest rates and currency fluctuation at the same time. A certain appreciation in rupee is fine but a large amount (about $5 billion) of speculative and arbitrage money which flows in every month in India is creating the problem. The government should control it.
Rupee appreciation in IT firms can be countered by its natural hedge of working in different currencies. But BPOs which work at a thin margin (Infosys BPO margin is about 17%) are certain to take a hit due to rupee rise. If the government does not control it, India may lose its cost advantage in BPO sector.

Is linearity between revenues and employees hurting you? How are you trying to tackle with it?

Managing scale is an issue which Infosys has been grappling with for quite some time. We are about 76,000 employee strong as of June 30, 2007. We plan to hire about 26,000 employees this fiscal which may make us a one lakh plus employee company. To tackle this problem, we are diversifying into newer services which offer better revenue per employee.

Is Infosys scouting for large sized acquisitions? Are you bidding for Capgemini?

We cannot comment on rumours. But what I can tell you is that Infosys is scouting for acquisitions. Instead of large, we will focus on small-sized buyouts which come as a strategic fit. The acquisition will be either to penetrate new service lines or acquire capabilities in infrastructure management, testing, BPO services etc. Else, the buyout will be driven to penetrate a different geography or market.

Are you renegotiating contracts at higher billing rates due to rupee rise? How many of the 35 new clients added this quarter came at higher billing rates?

A significant portion of the 35 new clients we acquired in Q1, came at an increased billing rate, of about 3-4% higher. We are in constant dialogue with our clients to increase billing rates. But most of the re-negotiation happens at the end of the of the contract. In return we have to add more value. It’s a give and take relationship. But the client has to agree.

India's Infosys Says It Needs to Increase Oveseas Presence

According to Business Week, India's second largest IT company, Infosys Technologies, has always experienced growth, unlike other competitors in India's technology arena which have gobbled up in acquisitions.Unlike its competitors, Wipro Technologies and Tata Consultancy Services who have been looking for acquisition in the U.S. and Europe, according to Business Week, Infosys, a Bangalore-based company, until recently had no reason to seek out acquisition. They have been steadily growing over the last five years at a rate of 40%.

However, per Business Week, as reported by Reuters on June 28th, Infosys was eyeing Europe's largest IT consulting and services firm, CAPP, Paris-based Capgemini. As rumors hit the marketplace, CFO, V. Balakrishnan of Infosys, denied the gossip because CAPP has a market capitalization of $10.5 million and Infosys is seeking acquisitions from companies whose worth is in the $100 to $200 million range.

As noted by Business Week, Infosys views consulting as a part of the market that could boost their bottom line and add value to its need for growth in its consulting services. Even though Infosys has experienced a rapid growth over in the past three years since its inception, and its sales were $111 million, the consulting side of the business lost $27 million this year through March, 2097. According to Business Week, VP of research firm Frost & Suillivan's IT practice in Mumbai, Alok Shende, said that as far as Infosys' stream of revenue, Infosys' consulting services have been sorely lacking.

The dollars to rupee currency swings have also had an effect on Indian outsourcers, even as U.S. accounts for over 70% of their revenue. The rupee, so far this year, has only grown 8% against the dollar. Unlike the U.S., Europe, per Business Week, has been unwilling to utilize Asian outsourcing which means, for Infosys, making major inroads in Europe is far more difficult.

Infosys, as reported by Business Week, is committed to bringing consulting competitors into the company on an executive level. For example, they approached Paul Cole, CAPP's former chief of global operations, Stephen Pratt, a former senior partner at Deloitte Consulting, and Romil Bahl, from EDS (EDS Consulting Services).

When CAPP acquired Kanbay International, it doubled its Indian workforce last year. This is significant in that if there were a deal between Infosys and CAPP, there would be an overlap in the workforce of about 18% of CAPP's global head count. According to Business Week, CAPP has already been struggling to find cost-cutting measures. Regardless, Infosys' desire to boost its share prices in the marketplace will still be seeking to make some kind acquisition deal.

Infosys banks on low costs - Kris

Interview: Infosys' president discusses the company's strategy for the European market.

By taking advantage of its ability to deliver services offshore from low-cost India, Infosys Technologies can offer IT services to European customers at 30 percent to 40 percent lower cost than they would get in Europe, according to S. Gopalakrishnan, the company's president and chief operating officer.

Gopalakrishnan discussed the company's strategy for the European market in an interview, an edited version of which follows.

IDG News Service: Do you see Europe as a top priority market?

Gopalakrishnan: Europe is probably the No. 1 priority for us. We want to balance our portfolio, which is now tilted towards the U.S., so we are investing proactively in Europe and Asia Pacific, and out of that Europe seems to be yielding results faster than Asia Pacific. Europe as a region is also the second-largest market next to the U.S. It also seems to be opening up for offshore and global sourcing in the last two years. It is far more receptive, and you have large deals happening in Europe, which in turn has given us confidence that this may be the right time to focus on this market.

Europe is also now willing to accept that these deals can be structured differently. In traditional outsourcing deals, you would take over a complete IT department and run it. What companies like Infosys have been proposing is that not all employees need to be brought in, but you need to do a selective transfer. It is better for both the clients and the vendors, and European customers are now willing to accept that.

In Europe, the U.K. is the biggest market for us because it is English speaking. France, Germany, Belgium, Switzerland, and the Nordic countries are the other markets we have addressed. In the future, we need to look at markets in southern Europe like Italy, Spain, and Portugal. We will also expand in Germany and France where the potential is fairly large, but we need to make more investments in these markets, because they require you to hire local people who know the language and the culture. If you look at Germany, for example, the markets are in the financial services and manufacturing industries, and specially in manufacturing, it is very difficult to interact with customers without knowledge of German. In contrast, in the Nordic countries and Switzerland you can make do with English, because companies there have made English the common language for IT.

There is some difference in the type of work that we do in Europe versus the rest of the world. Although Europe accounts for 25 percent of our revenues, on the BPO (business process outsourcing) side, 50 percent of our revenues comes from Europe, and most of that is from the U.K., because language is very, very important when it comes to BPO.

IDG News Service: Do you see an opportunity for Indian companies to offer BPO services in continental Europe in languages other than English?

Gopalakrishnan: It is challenging to offer BPO services in other languages, but we do it as part of an overall services strategy. We do it for example for a client for whom we are providing IT services.

IDG News Service: Is it important to have near-shore capabilities in Europe both for BPO and IT services?

Gopalakrishnan: Near-shore capabilities are required because of the need for local language capabilities. We have a center at Brno (in the Czech Republic) and we have doubled the capacity there in the last year. We are supporting clients in 11 European languages from Brno, and it is mainly in BPO. We also have a disaster recovery center in Mauritius. Since Mauritius is French-speaking, we are supporting some French clients from Mauritius. We have also opened a number of offices across Europe, and these will get larger as we look at larger projects and more consulting assignments.

IDG News Service: Does building more expensive on-shore and near-shore capabilities change the economics of the business?

Gopalakrishnan: The economics of the business will get changed only if you change the model. If the model is our global delivery model where 30 percent of the work gets done near the customer, and 70 percent of the work gets done in a location like India, then the economics does not change. Because if we are spending more, we are able to get higher (billing) rates as well.

IDG News Service: What benefits do you offer European customers in comparison to European outsourcers like Capgemini and LogicaCMG?

Gopalakrishnan: If you look at a pure implementation of the global delivery model, companies like Infosys have an advantage. Earlier customers were reluctant to look at a global delivery model, because they believed that it did not make much business sense for them to do it. The labor laws were also very stringent, and customers were not able to shift the work significantly offshore, and hence they were looking at it primarily from a specialized need or specialized services perspective. Now companies are looking at it from a global delivery model perspective.

IDG News Service: But your competitors in Europe also have an offshore delivery capability.

Gopalakrishnan: We are more experienced doing that. Our services are more mature, and having done this much longer for our clients in the U.S., clients in Europe now want to benefit from our model. [Our European competitors] are not able to scale in India. Compared to the overall size of these companies, their operations in India are very small.

It is just not about having people in India. It is about having your people and processes tuned to the global delivery model. For example, you need to be able to take a project, break it down into components, and distribute that to be done in different locations.

We are organized globally around a client or an industry vertical, so the operation in say Paris or India comes under the same manager who has the incentive to distribute the work better. He has an incentive to move the work to India, while the manager say in Paris of one of our competitors does not have the same incentive.

IDG News Service: What can the customer in Europe look forward to when outsourcing to Infosys? Lower prices, for example?

Gopalakrishnan: The way it works, is that for work done locally we charge the same or slightly more, while for work done in India the charges are different, because of the lower costs in India. That is the reason why overall the project costs are lower, because the more work is done in India at lower price points, the more the customer stands to benefit. The benefit for the customer is from execution at lower cost locations through the global delivery model. The other location we are adding is China. We are starting to support some global clients from China, specially those companies that are moving into China.

IDG News Service: Do your processes need to be tweaked to address the requirements of European customers?

Gopalakrishnan: To some extent, our processes will have to be slightly adjusted to European requirements. The European process is more rigorous, they are much more engineering oriented, than even in the U.S. We will have to aim for a higher level of quality, and higher discipline and engineering orientation for the project. It is about much more rigor and discipline in how we execute, how we test, how we deliver the software.

IDG News Service: European companies are still more reluctant to lay off staff than in the U.S. How do you plan to get around these issues?

Gopalakrishnan: On the staff side, we are willing to take some employees from our customers, but only if it fits into our global delivery model, which requires that 30 percent of the work gets done on site. A lot of European clients are willing to work within those parameters. Part of the reason for that is even though unemployment is high in some countries, it is also true that they are not able to staff a project. Companies are finding it difficult to get the people with the right skill sets, specially in newer technologies like Java, J2E, and .NET. They are also finding it difficult to get staff to work on older technologies like Cobol and CICS because some of the people have retired, and new people are not learning those skills because there isn't a large market for that.

IDG News Service: There is this perception that European companies are more comfortable outsourcing to Eastern Europe.

Gopalakrishnan: There are two reasons for that. One, it may be more acceptable within the organization to move the work to Eastern Europe than to India, because of their common culture, and also because some countries in Eastern Europe are part of the European Union. It is also beneficial from a language perspective, particularly for Continental Europe. On the flip side, you cannot scale in Eastern Europe as in India, and costs are higher. Even attrition of staff in Eastern Europe is higher as people can easily move and get work in another country.

IDG News Service: What cost savings can you offer European customers?

Gopalakrishnan: The savings work out to 30 to 40 percent on overall cost, as compared to getting the work done locally, either outsourced or in-house. Cost is only one factor. We can also offer improved predictability, quality, delivery on time, faster execution, as well as access to resources. There is the saying that you come to India for cost but you stay for quality. That is really true for services.

Original story

Is Infosys on the right track?

by Prashant Salwan. The author is a professor at IIM, Indore

When Infosys completed its 25th year, one of the major announcements it made was to invest $125 million in training facilities for 2006-07. Investment in employee development is not new, but it is vital when we talk of industry profitability and competitive strategy.

Infosys has shown good growth in turnover, and its revenue per customer is higher than that of Tata Consultancy Services, but in terms of revenue per employee, it is still below TCS and Wipro, and far behind international giants like IBM and Accenture.

In overall terms, TCS has the lowest ticket rates and is best at getting big accounts, Infosys has the high net margin and Wipro is strong in aggressive inorganic growth. The market regards Infosys as the best, as can be seen from its market capitalisation-to-revenue ratio in 2005-06 - this is 10.21 for Infosys, 8.49 for Wipro, 7.22 for TCS, 1.42 for IBM, 1.47 for Accenture and 0.7 for EDS.

If Infosys is to continue doing well as India expands its presence in the global offshoring market (it is around 53 per cent today) and achieves the McKinsey target of $75 billion by 2010, it will have to make some changes in its strategy.

Infosys' maximum growth in 2005-06 is in north America (64.8 per cent), but consolidated global figures show this region accounts for a lower 51 per cent of world growth in IT.

In terms of service lines, "development and maintenance" accounts for 54 per cent of Infosys' growth in 2005-06 whereas "business process management", for instance, grew by just 4 per cent and "engineering services" by just 1.8 per cent.

Apart from the threat low-cost destinations like China and Vietnam pose, multinationals like IBM and Accenture are also ramping up their Indian operations and pose a stiff challenge.

Emerging automation trends like intelligent technology infrastructure that manages itself, and other such trends can render the people-heavy model of Indian companies irrelevant and obsolete.

Also, the Indian education system churns out armies of doers and order-takers and not thinkers. Hence, there is a need to upgrade the skills of employees while moving up the value chain.

Infosys needs to train its employees so that it can move up the value chain and become a business transformation specialist like Accenture. One option is to go in for M&As in domain-specific consulting.

Though banking, financial services and insurance accounts for 36 per cent of Infosys' growth in 2005-06, the potential is a lot more since this accounts for almost 60 per cent of technology spending.

Original story

Infosys subsidiaries still not standing on their feet

The subsidiaries of Infosys Technologies are still in the investment stage, with two of the four units posting losses, though the company is hopeful of a turn around in a couple of quarters.

Of the four subsidiaries, the Australian operations reported revenues of $27.9 million (Rs 126 crore) with a net profit of $5.8 million (Rs 26 crore) for Q2. The consulting business reported revenues of $11.64 million (Rs 52 crore) with a loss of $3.27 million (Rs 14.7 crore), while the China operations reported revenues of $3.7 million (Rs 16.65 crore) with a loss of $1.3 million (Rs 5.85 crore). The BPO business posted revenues of Rs 157 crore with a net profit of Rs 22.6 crore.

At the Q2 results announcement here on Wednesday, group head (worldwide sales and customer delivery) SD Shibulal said the China operations have been bogged down by its global customers expressing serious concern over protection of intellectual patent in that country resulting in lower business. However, he said, the company has bagged a million-dollar deal in China and expects to see a turnaround in the next fiscal.

On consulting operations, Shibulal said it is in the investment mode and is expected to become profitable in the next two-three quarters and added 19 new clients in Q2.

On the impact of US slowdown, CEO Nandan Nilekani said it had done a dipstick survey of its customers and there was no evidence of any slowdown.

He said IT spend by companies is expected to remain flat, but the growing trend of globalisation of IT services will put it in an advantageous position. Infosys has got repeat business of 95% in Q2.

The Infosys CEO said the legacy giants (read IBM, Accenture) do not posing a threat to its business despite expanding their presence in India.

Infosys has also come out with a deferred bonus scheme for its senior management at the level of vice presidents. These bonuses will range from $20,000 (Rs 9 lakh) to $1.25 lakh (Rs 56 lakh) depending on the seniority. This bonus scheme is expected to benefit about 170 employees.

Original story

No impact of US slowdown on Infosys: Nilekani

Managing director and CEO of Infosys, Mr Nandan Nilekani does not anticipate any impact of the US slowdown on Infosys. Mr Nilekani says that Q2 saw a 1.2 per cent increase in blended prices. Margin expansion is also on account of rupee depreciation, he said.
The following are the excerpts from CNBC-TV18’s exclusive interview with Mr Nandan Nilekani:

Q: There were apprehensions that because of all the talk of US slowdown you may choose to be a little bit more circumspect this time but your guidance is even stronger?

A: Yes, I think we had a good quarter; we grew sequentially in dollar terms at 13 per cent, rupee terms at 14.5 per cent. We also had a 2.5 per cent improvement in our operating margin through visas, SG&A and rupee depreciation.

Q: Are you assuming any uptick in pricing at all?

A: This quarter there has been a 1.2 per cent uptick in blended revenue productivity, but basically we are not assuming anything much different, in the sense that it’s slightly upward but nothing more than that.

Q: Tell us a little about your sponsored ADS and when you plan to offer that?

A: I am limited by what I can speak about this sponsored ADS, it has been approved by the board, it is up to 30 million shares. We have articulated a long-term goal, being in one of the global indices, so this is a part of that journey. Beyond that we cannot really talk about ADS due to SEZ laws and other constraints.

Q: Just as a snapshot, how have the subsidiaries performed and are you seeing margin improvement across your subsidiaries as well in this quarter?

A: Overall the subsidiaries have contributed totally about $5 million to our bottomline, so the bottomline of Infosys is $193 million, consolidated to $198 million.

Original story

Infosys eyes acquisitions in Europe, Japan

Infosys is looking at acquisitions in Europe and Japan to expand markets, says S Gopalakrishnan, president, COO, and member of the board, in a post-results interview. Excerpts:

Infosys continues to be conservative as far as acquisitions are concerned. Comments.

We will look at acquisitions to fill gaps that we identify. We will look at acquisitions to increase market footprint in Europe and Japan. This will help us gain traction on the ground in these markets.

We will also look at building capabilities in areas like consulting via acquisitions. At the same time, we don’t want to be pushed into acquisitions. Data prove that 65-80% of acquisitions fail as they fail to deliver value.

Engineering services outsourcing (ESO) is touted to be a $10-bn opportunity for India by ’10 but accounts for only 1.6% of Infosys’ revenues.

Are you planning to increase focus on ESO?

Engineering services is a fast growing area and contributed 1.6% this quarter. We are focusing on this. But it also happens to be one of the most price-sensitive market opportunities.

We want to grow it in line with our profit expectations. We are doing ESO work in areas like engineering, design, CAD, CAM, aerospace (working for Airbus and Boeing) and others.

Original story

Infy hired 10,795 people in 2nd quarter

Keeping pace with its scorching growth, Infosys Technologies Ltd hired a record number of 10,795 people during the second quarter (July-September) of the current fiscal (FY 2006-07).

"The gross addition of 10,795 people during the quarter (Q2) is the highest employee addition in any quarter. We are increasing our investment in education and training, besides improving the knowledge base of entry-level talent through the Infosys Campus Connect programme," said Infosys board member and head of HRD T V Mohandas Pai in a statement here Wednesday.

As a result, the total number of employees was 66,150 by the end of September, against 46,196 in the same period last fiscal (FY 2005-06) and 58,409 by the end of previous quarter (April-June).

With attrition level increasing to 12.9 percent in the last 12 months, the net addition was 7,741 by the end of September, as against 6,390 a year ago and 5,694 by the end of previous quarter (April-June) when the attrition levels were 10 percent and 11.9 percent respectively.

"We have also put in place a long-term retention bonus plan for senior employees during the quarter," Pai added.

Of the total employees, software professionals are 61,966, including 53,873 billable and 6,264 as trainees. The rest are employed in the banking product group (1,809) and sales & support (4,184).

Original story

Infy plans sponsored ADS for 30m shares

Infy shareholders are in for a bonanza. At the company’s board meeting held on Wednesday, the directors decided to go in for a third sponsored American Depository Share (ADS) issue for upto 30m shares.

Though the time frame for the issue has not been decided, the size is expected to be around $1.5bn as per its current stock price. The aim? To increase the float in the overseas market and possibly look for entering the Nasdaq-100 list. “Increased float is a positive development,” said an analyst with a broking firm.

The first time Infy had gone for a sponsored ADS was in ’03 by raising a sum of $300m which was followed by a $1bn issue in ’05. As in case of the second ADS, the third too will see a public offer without listing (POWL) in the Japanese market.

Unlike corporates raising monies through a global depository receipt (GDR) issue, the proceeds from the ADS will not accrue to Infosys (which already has cash and cash equivalent of over Rs 4,000 crore) but to the tendering shareholders.

Speaking to the media, Nandan Nilekani, Infosys managing director said the aim of the issue would be to increase the floating stock in the overseas markets.

Incidentally, some shareholders like city-based Raymond Fernandes who had tendered during the first time and didn’t participate in the second issue during ’05 are not keen to participate the third time around. “I believe that the tech sector is in for re-rating within the next few weeks. There is a good upside still left,” he said.

Many broking firms which had forecast bearish results have gone on the defensive with many said to be looking at advising their clients to hold on and not tender for the ADS. The 12-month target set by some broking firms is Rs 2,500 to Rs 2,600 per share.

Original story

Infosys to invest $65 million in China

Infosys plans to invest $65 million in China expansion and planning to set up new facilities in Hangzhou and Shanghai.

Infosys Technologies said Wednesday that ramp-up in its Chinese operations was happening at a slower pace than expected over clients' concerns on protection of intellectual property (IP) in that country.

Infosys' head of delivery, Mr S. Shibulal, said that clients were diffident to the company's proposition of getting serviced from China over IP protection.

Global clients wary

"The global clients are still not yet convinced about China as an ideal location for offshore outsourcing. We are still trying to convince them," Mr Shibulal said adding that client' diffidence would not have an impact on company's expansion plans.

Infosys, which started operating from China few years ago, has managed to add a little over 700 people there. Infosys plans to invest $65 million in expanding its Chinese operations over the next five years with a targeted headcount of 6,000 and is setting up two new facilities in Hangzhou and Shanghai.

However, Mr S. Gopalakrishnan, President and COO, said the company was unlikely to take a re-look at its Chinese investment plans. During the September quarter, Infosys managed to get its first million-dollar client in China. The company, which clocked revenue of $2.5 million in China during second quarter, posted losses to the tune of over $1.33 million, he said.

Infosys' consulting subsidiary also continued to post losses. "We are still in an investment mode and it may take about two to three quarters to achieve a break-even," Mr Gopalakrishnan said. Infy's consulting business grew 29 per cent to post revenues of $13 million and a loss of $3.3 million.

Good growth

But other subsidiaries, Infosys Australia and Infosys BPO posted good growth during the quarter. Infosys BPO grew 20 per cent quarter-on-quarter to clock revenues of Rs 157 crore. Profit margin for Infosys BPO stood at 23.3 per cent. Infosys BPO added three new clients during the quarter to take its overall client base to 24.

The BPO outfit added 2628 people to take its overall employee base to 9,776 and had an attrition rate of 38 per cent. Infosys Australia clocked revenues of $24.97 million and had a profit margin of 17 per cent.

Original story

Infosys set to cross $3-b mark in a year

It took 23 years for Infosys to achieve the first billion dollars. The company took 23 months to earn $2 billion. Infosys will see its revenues exceed $3 billion in a year's time as it targets a growth exceeding 45 per cent for the current year.

Infosys, which declared Q2 results on Wednesday, said that it was seeing a stable pricing regime with an upward bias going forward. "We believe the current pricing environment is stable with an upward bias. New customers are coming in at 3-4 per cent higher billing rates," said its Chief Financial Officer, Mr V. Balakrishnan.

New business accounts for about five per cent of Infosys' revenues. The company was also getting 1-2 per cent higher rates from existing clients coming up for renegotiations, he said. Infosys, which saw a volume growth of 11.2 per cent, saw an improvement of 1.2 per cent in blended rates over the first quarter.

Further, Mr Balakrishnan said he expected margins to remain stable at current levels for the rest of the year. Infosys saw a 250 basis point rise in operating margins during the quarter to 28.6 per cent.

About 1.1 per cent gain in OPM was due to reduced visa cost, while 0.9 per cent was due to rupee depreciation and 0.5 per cent from the economies of scale benefit and reduction of selling, general and administrative costs, he said. Infosys has taken a forward cover to the tune of $373 million, he said.

To hire more

Infosys expects to hire 3,000 more people for the year in addition to the previously projected 25,000 hires, said Mr Mohandas Pai, Director, HR. The company saw attrition increasing marginally to 12.9 per cent. Infosys expects to add about 5,700 people in Q3 and some 3,800 people in Q4 on a gross basis, he said. Further, Mr Pai said the wage hike of 12-15 per cent will continue going forward and Infosys will effect the next wage hike in April 2007.

Mr S. Gopalakrishnan, President and COO, said the company saw high growth in verticals such as banking and capital market during the September quarter. New services like testing, infrastructure maintenance services and package implementation among others are also growing well, he said.

The top 10 customers of Infy grew 17 per cent quarter-on-quarter, while the top 25 clients grew in line with the company average. Infosys saw a strong contribution from geographies like Australia, while European revenues saw a marginal dip, which Mr Gopalakrishnan termed as seasonal. Europe accounted for 25.8 per cent of Infy's Q2 revenues.

Infosys reported a utilisation rate of 80.3 per cent for its services business and targets 77-80 per cent, he said.

Original story