Infosys results, comments cast pall over Indian outsourcers

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.