Infosys results, comments cast pall over Indian outsourcers

Infosys results, comments cast pall over Indian outsourcers

Summary: Bottom line: There may be some jittery times ahead for India's outsourcing giants.

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Infosys' fiscal fourth quarter results fell short of expectations and the company has limited visibility as deals are tougher to close.

The company reported fourth quarter earnings of $463 million, or 81 cents per American Depository Share, on revenue of $1.77 billion, up 10.5 percent from a year ago. Infosys earnings met expectations, but revenue fell short of the $1.81 billion expected by Wall Street.

Meanwhile, Infosys said it expects fiscal 2013 revenue to grow at an 8 percent to 10 percent clip with a range of $7.55 billion to $7.69 billion, well below expectations. For the first quarter ending June 30, Infosys projected earnings per ADS of 73 cents on revenue of $1.77 billion and $1.79 billion. Wall Street was looking for earnings of 75 cents a share on revenue of $1.86 billion.

So what went wrong? A little bit of everything.

Among the key comments from Infosys' earnings conference call.

S.D. Shibulal, CEO of Infosys, said financial services pulled back:

We see that most of the budgets have closed flat or marginally down or slightly down. At the same time we are not getting good visibility. We are not able to see high visibility on the spending. This is also true especially in the financial services segment, where we are seeing zero base budgeting, month-to-month decision making as well as a lack of linkage between the profits and the technology spend. In general, in the financial services segment, when the profits go up, the technology spend also go up. We are not seeing that. There are many reasons for this. The profits predominantly are not going up because of healthy business reasons. These are other reasons like write-backs and things like that. And while their profits are going up, their revenues are not going up. So given those factors we are not seeing that linkage. We also saw that some of the regulatory reforms have been pushed out, which is slowing down spend in financial services. There has been also leadership changes at least in a couple of our accounts in the financial services segment.

Ashok Vemuri, head of Americas, said the U.S. market was strong in manufacturing, but an election year is going to hurt outsourcing. He added:

While we are concerned about the volatility and the uncertainty that is there globally and the implications it has for the US market, we do also realize that this is an election year in the United States and therefore is accompanying rhetoric, especially towards the kind of business model that services companies use.

B.G. Srinivas, head of Infosys' Europe unit, said that the company is making good progress, but there are economic worries. He said:

Of course, my goal is to drive Europe revenues ahead of the rest of Infosys. But given the macroeconomic situation and the fact that Europe will continue to be slow in decision making, it's difficult to say at this point in time. But given the current set of opportunities and hopefully decisionsare taken in time, I would say that at this point I would tend to see a steady growth in Europe, unless something really happens in the macro environment, which could shake up Europe.

Vemuri also emphasized that Europe's unrest is impacting the financial services market too.

I think important thing is that we found some of our financial services senior executives and buyers to be extremely fickle. So we had actual conversations where our client has said, there's uncertainty, Spanish bond fees have gone up so we don't know whether we should continue this program. There is uncertainty because of the riots in Greece. So after a while of hearing these explanations we basically thought maybe they were not able to give us a reason to not give us the program, and they're cooking these up. But this is something that we found consistently, even in conversations with some of our competitors, who are hearing some of the similar kinds of things from our clients.

Bottom line: There may be some jittery times ahead for India's outsourcing giants.

Topics: Enterprise Software, Banking

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8 comments
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  • They don't hire much in the US

    As an Indian, I can tell you that they prefer to get boatloads of H1, L1 and B1s rather than hire locally available people in the US. The others (Wipro, TCS, Satyam) are also like that. The reason? They can make these H1/L1/B1s work morning to night, something that no local people are willing to do. What do they do from early morning till late night? Well, they have to interact with their offshore counterparts, attend conference calls and meetings, discuss with customers and do a lot more in addition to the coding or technical work they have to do. Most consultants from the Indian majors do not have a life other than being on site and waiting for weekends. Yet, most of the offshore people keep pestering their management to send them to the US because of the prestige involved and also as it is a chance to earn more money. Prestige? Yes, the H1/L1/B1s and their parents can go around saying they/ their children are/were in the USA and that moves them up the social/marriage ladder.
    GoForTheBest
    • They don't pay much, either

      Slave labor, anyone?

      Don't forget, Microsoft is one of the biggest H1B outsourcers out there.

      You remember that the next time you spend $320 for that Windows Ultimate disc.
      ScorpioBlack
      • And yet -

        If these low paying jobs weren't available, many of the employees would have no employment.

        What's worse? Low pay or no pay? Unfortunately a fact of life in the third world.

        Now, on the flip side, the old adage, "You get what you pay for" often rings true. Companies that buy outsourcing services and expect the same level of service that internal support groups provide are sorely disappointed.

        One should always remember that:
        Internal groups work to Customer Satisfaction.
        Outsource Contractors work to the Contract.

        Usually two very different things!
        Cynical99
  • And The Lawsuits

    Not just Infosys, but the other 2 major Indian firms with a presence in the U.S. are all facing lawsuits due to unscrupulous business practices. It is bad enough American companies are shipping jobs overseas, but when the same overseas companies setup shop in America, and then hire predominately imported Indian workers - I say enough. On top of that, they are breaking U.S. labor laws and treat their employees like crap.
    This needs to change. American IT workers are having a hard enough time finding work with jobs being offshored, and now they have to compete with foreign companies, hiring primarily foreign workers (with a few token Americans), who seem to have a very hard time obeying the law.
    Let's hope the lawsuits bear some fruit and maybe we can say adios to these foreign companies.
    jpr75_z
    • Just the "free market" at work.

      Hey, why blame these companies? It's just the so called "free market" at work. These firms are just out to make a buck. You'll see and end to these foreign companies when dancing pigs fly the samba.
      kraterz
      • Bull

        That's like comparing the "free market" with an act of God. This is something that's man-made, not a force of nature.

        If government created it, then government can taketh away.
        ScorpioBlack
    • Cannot have your cake and eat it too...

      "Let's hope the lawsuits bear some fruit and maybe we can say adios to these foreign companies" - I hope you know that US multinationals earned 53% of their revenue from their foreign affiliates. So free trade is okay as long as it benefits you? And do you really believe that US firms never break any laws while operating in these "foreign" countries?
      itzwinger
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