The Hindu Business Line : Guidance several notches higher than expectations

Infosys Technologies, the software services bellwether, has once again raised the competitive bar for the entire sector, with a sharp upward revision in yearly guidance and a first quarter performance that was way ahead of market expectations.

This upward revision in revenues and post tax earnings guidance by 11 and 12 percentage points to 40 per cent and 39 per cent, respectively has infused a fresh breath of life into the technology space and in turn, lifted the overall market sentiment.

Though the latest guidance bears striking parallels to a positive surprise delivered by Infosys in 2004-05, it is actually superior on two counts.

One, it started the year 2004-05 on a conservative note pegging the revenue and earnings guidance at 24 and 20 per cent. However, following a robust first quarter, it revised this guidance to 40 and 34 per cent for the full year.

In 2006-07, since Infosys started off with a much more promising guidance, the latest upward revision is several notches higher than expectations.

And the key difference is that in 2006-07, the company is expected to clock this growth on a much higher revenue base of $2 billion compared to $1 billion in 2004-05.

Two, in 2004-05, the revision in guidance was attributable primarily to the sharp rise in discretionary spends for application development, after more than two years of technology slowdown in the US. While this time around too, a part of the growth is likely to be powered by discretionary spends, evident from the 18 per cent sequential rise in application development revenues in the first quarter of 2006-07. But Infosys is also sending a signal to the market that it expects the frontline offshore players to grab a much bigger share of the global IT spends, even if the US economy were to slow down for any reason.

Despite intense competition from multinational peers, the confidence stems from the fact that Infosys currently enjoys multiple levers of revenue growth ranging from new service offerings such as testing or infrastructure management, greater openness to outsourcing from Europe to a much wider range of new verticals such as life sciences or retail to operate in than ever before.

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