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Infosys Paints A Gloomy Picture For 2009-10

15 April, 2009

It’s really a bleak economic environment. Even India’s bluest chip IT firm Infosys Technologies has forecast a drop in annual sales, indicating that all is not well with the business environment. Owing to reduction of IT budgets by its clients, Infosys said it would see a drop of 3.1 percent to 6.7 percent in its revenues in dollar terms for 2009-10 financial year. It’s expecting revenues between $4.35 billion and $4.52 billion, which is just 1.7-5.7%  above the revenues of last year.

Infosys is known for its conservative guidance always and it likes beating the market esitmates. However, we do not know if it can do that magic this year. Because, Infosys has reported its first ever sequential fall in its revenue in a decade during the March 2009 quarter.

It also estimated its dollar revenue in Q1 of 2009-10 to drop 6.5 percent to 8.2 percent to range between $1.06 billion and $1.08 billion.

“This is probably the worst economic scenario we have seen in our life time,” Infosys CEO S. Gopalakrishnan said, according to Bloomberg. “Hopefully we will not see such a scenario again.”

According to analysts and the street who are disappointed by the company’s results think Infosys as a “waiting game now”. One needs to see how it rides the Sep/Dec quarter “recovery”.

“The fact that Infosys has had a hard time meeting its topline guidance off late, and we see absolute downsides ahead for the stock,” said an analyst of a Mumbai based broking firm.

Infosys is the first major Indian technology firm to report earnings every quarter. Its results are often considered an indication of how the industry will perform.

The demand for the software exporters has been hit majorly, as they get most of their revenue from the U.S. and Europe, where their clients are cutting cost, including spending on technology, due to the global economic slowdown.

“Many of our clients are impacted by the financial crisis and are looking to us to help them reduce their expenses and optimise their businesses,” Gopalakrishnan said in a statement.

The company’s European business suffered a drop of 12.5% sequentially due to beleaguered telecom, manufacturing, and financial sectors.

Its North American business could grow by just over a per cent despite slowdown in the US economy. Among its verticals, manufacturing revenue fell by 6% whereas telecom dropped by 15.3%.

Worsening Demand Hits The IT Sector Hard

A services businesses depends on its topline health. No matter there have been wage cuts,  layoffs and currency boosts, but they can only provide for back margin defence hopes, Indian IT will continue to struggle if there is a lack of demand revival.

Since Infosys, the country’s IT bellwether has started showing fallouts of a reduced demand, this  can be telling on other IT companies too, believe the analyst.

Infosys is more disciplined in pricing and cost management than peers and Infosys’ outlook suggests peers are likely to face substantially greater margin headwinds. “TCS and Wipro are facing the same topline headwinds, but in our view, worse margin challenges,” added the analyst. 


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Infosys Paints A Gloomy Picture For 2009-10

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