The Hindu Business Line : Cautious optimism is Infosys guidance

Chennai, July 11 The negative sentiment in the West (triggered by the mortgage crisis in the financial services industry) still lingers, giving some cause for concern among IT services providers in India.

“All the challenges are not over. There is some more bad news (that could come up, in the macro-economic environment),” Mr S. Gopalakrishnan, CEO & MD, Infosys Technologies, said at a conference call with analysts, following results announcements for this year’s June quarter.

Answering a question, Mr S. D. Shibulal, Chief Operating Officer, added that a client poll the company conducted during the quarter ended June 2008 showed that client sentiment had marginally deteriorated, compared to a similar one done during the March quarter. “All our clients have decided on their budgets. IT spending is either flat or marginally down”, he added, compared to last fiscal. He said that the focus for the company was to remain in existing relationships.

Interestingly, revenues from the banking and financial services vertical had grown four per cent in the June quarter, compared to the March quarter this year. Asked if the company saw continued growth despite the bad news from the sector in the West, Mr Gopalakrishnan said, “We are cautiously optimistic. We don’t know how long the negative sentiment is going to last.” He added that growth for the sector would continue in the same region for the remainder of the year.

Price bargains

Mr Shibulal added that the company had seen sporadic incidents of clients asking for lower prices. “The bad news (in a macro economic sense) is coming from the BFSI and retail sectors. It is natural for them to come to us, asking us to lower prices.” While he did not specify if Infosys had indeed lowered prices, he said that it was the company’s job; to convince clients to accept current pricing levels; and to possibly deliver “more value for the same price; or negotiate volume discounts. He clarified that there is no opportunity to increase prices.

Mr Shibulal also said that clients now take more time to make decisions. “What used to take one month now takes between 2 and 3 months. Decisions are also going to higher levels in client organisations.”

The company’s top client saw contribution to total revenues going down to 7.9 per cent from 10.3 per cent, sequentially. “This client is in Europe, in the telecom sector. It is a question of only one client and there is no trend there. Demand in the telecom sector continues. That industry, like other industries, might face a credit squeeze, but nothing more. Revenues too may be lumpy, but the opportunity is there.”

The company saw an addition of 49 clients, out of which 20 came from the manufacturing sector. Mr Shibulal said, “These were distributed between the US and Europe. We are still investing in Europe, especially in the sales and marketing function.”

Commenting on the guidance for the quarter ending September, Mr Gopalakrishnan said, “The revenues for the June quarter and the estimated revenues for the September quarter together constitute between 46 and 49 per cent of the guidance for the whole year. That has been the trend for the company in the previous years.” Asked if that meant that demand is up again for the year, he only said that the company continues to be cautiously optimistic.

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