Posts Tagged ‘Infosys’

Infosys Q2 profit rises 9.8%, firm lowers FY16 dollar revenue growth forecast

October 13th, 2015

Infosys Ltd cut its full-year revenue growth forecast in dollar terms on Monday, citing the potential adverse effects of cross-currency movements, although it reported higher-than-expected revenue for the second straight quarter.Outsourcing45

India’s second largest software services firm lowered its revenue growth forecast for the year ending 31 March 2016 to a range of 6.4-8.4% in dollar terms, from an earlier forecast of 7.2-9.2%.

The revision jolted investors. Infosys shares fell 3.88% to Rs.1,122.50 on BSE on a day the benchmark Sensex shed 0.65% to 26,904.11 points.

Infosys retained its earlier revenue growth forecast of 10-12% in constant currency terms for the fiscal year, but warned that growth in the October-December quarter may not be better than the 0.8% increase in the year-ago period.

“Our endeavour, our wish is to be (better than the year-ago period) but our visibility is that it will not be,” Vishal Sikka, who took over in August 2014 as Infosys’s first non-founder chief executive, said in an interview.

In the three months ended 30 September, Infosys posted 6% growth in revenue on top of a 4.5% increase in the June quarter. It added 82 clients in the quarter to take the total number of active clients to 1,011.

Infosys’s revenue jumped 6% sequentially to $2.39 billion.

Worryingly for the country’s $146 billion outsourcing sector, slow demand growth that Sikka referred to was on account of clients across industries holding back on technology spending— a factor that’s not limited to Infosys.

If it pans out, this could mean that Infosys’s larger rival Tata Consultancy Services Ltd (TCS)—which posted a 3.5% sequential revenue growth in the first quarter—could find it challenging to match the 12-14% year-on-year growth that industry body Nasccom has forecast for the software services sector this fiscal year.

TCS is scheduled to report its second-quarter earnings on Tuesday.

“Traditionally, Infosys is the first to actually give any trend of any industry slowdown. Since the company has said it is seeing softness in demand, this actually puts TCS under pressure,” said a Mumbai-based analyst at a domestic brokerage firm. “It remains to be seen if the company will be able to grow even at 14%.” He declined to be named.

Infosys’s new chief financial officer Ranganath D. Mavinakere said that even if the company experiences “flat growth” in the third and fourth quarters, the company will still be able to end the year with growth at the “upper end” of its 10-12% forecast in constant currency terms.

Infosys appointed Mavinakere, formerly head of strategic operations and CEO’s office, as the new chief financial officer, after Rajiv Bansal decided to quit. Bansal will be an adviser to Sikka and his team until the end of December.

For the July-September period, Infosys’s net profit improved 10% sequentially to Rs.3,398 crore and revenue jumped 17.2% to Rs.15,635 crore in rupee terms.

A Bloomberg poll of 22 analysts estimated that the company would post a net profit of Rs.3,287 crore and revenue of Rs.15,211 crore.

Infosys’s growth was led by a 6.1% improvement in the US, which accounts for more than 60% of the company’s total revenue. Revenue growth in Europe, which brings in about one-fourth of revenue, improved 8.3% in the July-September period.

The banking, financial services and insurance sector, which accounts for 33% of the company’s revenue, grew 5.2% over the three-month period; business from retail and consumer clients saw a 7.9% improvement.

“It is an excellent set of numbers, as it’s more broad-based growth, across industries and geographies,” said the second Mumbai-based analyst working at a foreign brokerage firm. He didn’t want to be named.

Operating profit margin widened 1.52 percentage points sequentially to 25.54%, on account of improving utilization rates and an added 70 basis points gains made on cross-currency movements. One basis point is 0.01%.

Since taking the helm, Sikka has been pushing the company to embrace automation and other new technologies to stay competitive amid pricing pressure for traditional IT work.

Infosys is also making its engineers adopt the user-centric approach of problem-solving called design thinking, to open new revenue streams.

“I’m very optimistic and we are already seeing the benefits (of the changes put in place),” Sikka said, after the company reported its earnings.

But some experts said that it is still early to say if Infosys under Sikka has indeed made a turnaround and it could be a “long bumpy road” ahead for the current management.

“Ever since Vishal took over the reins at Infosys, we cautioned that the road to recovery will be a bumpy one. Its Q2 results appear to underline exactly that. Sound quarterly results were clouded by a softening in the outlook,” said Thomas Reuner, managing director of IT outsourcing research at HfS Research.

“The key issue is change management, both with a set a clients and also as the company internally shifts to embracing automation as it is disrupting Infosys’s workforce as Vishal pointed out. Crucially, we have to remember that the secular macros have not changed. Vishal and his management team continue to have their work cut out.”


Sikka steers Infosys on bumpy road in first year

June 22nd, 2015

As the first non-founder chief executive of India’s iconic IT behemoth, Vishal Sikka steered Infosys Ltd well on a bumpy road to turn around its fortunes in his first year at the helm.Outsourcing19

Though the 48-year-old former SAP AG executive took charge of the $8.7-billion global software major on August 1, 2014, he instilled hope in the 1.76-lakh techies that their troubled company was in safe hands and had a bright future.

“It has been a year of great transition for us though the full-year performance was average,” Sikka candidly admitted in his maiden letter to the company’s investors ahead of its 34th annual general meeting (AGM) here on Monday.

Admitting that the company faced internal issues leading to lagging growth, Sikka said high attrition rates and exit of many key executives during the fiscal 2014-15 had put tremendous pressure on its business and performance.

A whopping 37,604 techies left Infosys in 2014-15 as against 36,268 in 2013-14, resulting in net addition of 15,782 in FY 2015 as against 3,717 in FY 2014.
“There were hard-fought battles in a difficult climate in which clients’ expectations were changing, new emerging technologies were coming to market and where the landscape of (IT) services firms became more competitive,” Sikka told the 4.5-lakh investors.

A 1:1 bonus issue in October 2014 swelled the number of shareholders by 24 percent to 448,000 in December from 362,000 in September, while the company’s board recommended another 1:1 bonus on April 24.

Signalling a departure from the era of its illustrious co-founders who built the company with their hard-earned savings over the last three decades, Sikka said the management and the employees were learning to work in a new environment and in new ways through a difficult phase.

“As I look over the last year (fiscal 2015), which has been a difficult one, I see many promising signs for the future as with learning comes the promising of renewing ourselves and pursuing new horizons,” Sikka said in the letter.

In a bid to check the rising attrition level, which shot up to a whopping 23.4 percent in first quarter (April-June) before Sikka took over the reigns, the company wooed its techies with a higher compensation and additional hikes in third quarter (September-December) and promotions to 25,000 to retain as many of them.

“By investing more in our employees and giving them opportunities to move up the value chain, we brought down annualised attrition to 13.4 percent in the fourth quarter (January-April) from 23.4 percent in first quarter (April-June) and the number of employees leaving the company reduced by more than half from May 2014 to March 2015,” Sikka said.

Assuring investors of higher growth, operating margins and profitability, the chief executive said the company’s revenue would grow 10-12 percent in constant currency for this fiscal (2015-16) as against 7.1 percent in last fiscal.

“I believe we have a promising year ahead of us in the near term. Looking beyond this year (FY 2016), our mission is to prepare the company to achieve an aspirational goal of $20 billion in revenue by calendar year 2020, with 30 percent operation margin, with specific targets of increasing revenue per employee to $80,000 per year,” Sikka said.

Growing at 5.6 percent in dollar terms, the outsourcing firm’s consolidated revenue increased to $8.71 billion in the fiscal under review (2014-15) from $8.25 billion in previous fiscal (2013-14) and operating margins to 25.9 percent in FY 2015 from 24 percent in FY 2014.

“Our strategy to achieve large-scale growth is the right one, as evident from several measures we took to improve competitiveness in winning large deals in areas such as application maintenance, software testing, infrastructure management and business process outsourcing,” Sikka pointed out.

A doctorate in computer science from Stanford University, the Silicon Valley-based Sikka infused fresh blood at executive levels by inducting at least a dozen of his former colleagues at SAP and investing substantially in the automation platform to run the software more on artificial intelligence than human ability.

“Going beyond automation, we are bringing artificial intelligence to more cognitive tasks that were not solvable by software systems, specifically, complex business problems such as airplane engine balancing through artificial neural networks,” Sikka added.


Why Indian IT firms want to shift outsourcing projects from offshore to onshore model

June 15th, 2015

With the advent of automation at the heart of India’s $146-billion information technology industry, the sector’s biggest customers are starting to rethink their strategy around outsourcing and debating whether to shift some outsourcing projects onshore – a development that has the potential to make the offshoring versus onshoring debate irrelevant. Outsourcing15

With automation having the potential of reducing costs by as much as 80% in commoditised service lines such as computer infrastructure management, customers of Indian IT are starting to initiate conversations around whether they can move more projects to onsite locations, without significantly disrupting the traditional offshoring labour arbitrage model of Indian IT in the near term.

“When you have the potential to automate certain projects, what difference does it make whether that project is onshore or offshore? It makes that debate irrelevant,” said a chief information officer of a European bank that outsources projects to one of India’s top three software firms. He requested anonymity as these discussions are private and confidential. The development, if it kicks off consistently, will signal a considerable shift for Indian IT firms such as TCSBSE -0.17 % and Infosys, which have for years thrived on the offshoring model where they built large campuses to house thousands of engineers to help bring down the cost of software development and maintenance.

“After more than a decade of achieving value through the offshore labour arbitrage model, one would think that mature organisations that have built GICs or captives, or organisations with extensive use of third-party outsourcing providers, would be at peace with the model. We expected them to move to a model of arbitrage plus automation,” said Peter Bendor-Samuel, CEO of outsourcing advisory Everest Group, in a blog post last week. “But the level of peace and comfort with offshore arbitrage is much less than we expected, and companies are expressing their desire to use robotics automation to repatriate their work,” he added.

The emergence of robotics automation, as has been widely reported, has the potential to disrupt the traditional “pyramid model” of Indian IT. Recognising the need to gain an edge in the battle for automation, the sector’s top companies such as TCS, US-based Cognizant and InfosysBSE 0.70 % are investing heavily on building tools and platforms that can afford large-scale cost benefits to demanding customers who are tightening technology-spending budgets with each passing year.

For instance, Infosys’ new automation platform has the potential to generate productivity improvements of about 40-50%, Infosys’ head of platforms Abdul Razack said in an interview last week. Similarly others like IPSoft’s cognitive computing system Amelia has the potential to perform routine, commoditised tasks at a fraction of the cost and time it takes a human engineer.

The fact that the cost of automating software services has come down rapidly over the years is also playing its part in this debate. “Previously, about 10-15 years ago, the cost of automation was much much higher – now that those costs have come down, you can afford to keep more projects onshore,” said Sid Pai, Asia-Pacific head at outsourcing advisory firm ISG.

To be sure, this does not mean that customers will move work away from third-party vendors such as TCS and Infosys. What is likely to happen is what is commonly referred to as “rebadging” — the process where third-party vendors take over the assets of a customer and replace personnel with their own staff, experts say.


India prods China on IT, ITeS access

May 28th, 2015

New Delhi will soon send a reminder to Beijing on the hurdles faced by Indian IT/ITeS firms in getting greater market access in China. This follows concerns raised by industry bodies Nasscom and CII in meetings with the Union government about the difficulties in qualifying for bids put out by Chinese government and state-owned enterprises (SOEs) for IT/ITeS projects.Outsourcing10

In the aide memoire to be sent to China, sources said, India would also urge China to strengthen its intellectual property (IP) regime to protect Indian firms’ IP rights.

As per the 2013 Nasscom-KPMG study, of the estimated $46-billion Chinese IT/ITeS market, India’s share is less than $1 billion, despite its global reputation as a major export of IT-related services. China’s IT/ITeS market could cross $84 billion by 2020.

An aide memoire in diplomatic parlance means a note summarising in an informal manner (sans the usual courtesy phrases) the discussions between both sides. It is meant as ‘an aid to memory’, and a gentle reminder, seeking the necessary action on the points discussed. Indian IT firms operating in China include TCS, Infosys, Wipro, HCL, Tech Mahindra, NIIT (Education), Zenzar, Geometric, Mphasis, Mindtree, Birlasoft and KPIT.

In China, the government (at the federal and state/local levels) and SOEs are among the largest buyers of IT-related services. The Nasscom-KPMG study says by 2020 demand from SOEs is likely to be 45% of the total Chinese demand.

To qualify for bids of large projects, an applicant company needs to show that they have helped in the implementation of Chinese government/SOE projects of similar size. “We have suggested that China should ascribe more value to the experience of companies in government projects of similar sizes outside China, ” Gagan Sabharwal, director (global trade development), Nasscom said.

India had, on many occasions earlier and even during Prime Minister Narendra Modi’s recent visit to that country, taken up these issues with China. However, the fact that Beijing was yet to respond favourably to New Delhi’s concerns was recently discussed at a meeting held by the Indian commerce ministry, official sources told FE. The ministry then prepared the aide memoire and forwarded it to the Prime Minister’s Office to be sent to the Chinese authorities, they said.

Nasscom has also suggested that India and China should, on a reciprocal basis, allow easier movement of highly skilled professionals through long-term visas and work permits to enable Indian and Chinese companies to send across such experts to work in each other’s territory.

CII had pointed out that insistence on local entities in some provinces in China to avail subsidies was reducing competitiveness of Indian IT/ITeS firms. Besides, CII said, Indian IT/ITeS firms are facing challenges in staff mobility between provinces in China due to the ‘hukou’ system (a system of household registration that restricts internal mobility of people and ties their future prospects to their place of residence), necessitating local offices in each project area.

To showcase technological expertise of Indian IT firms, CII said certain pilot projects can be chosen to be jointly executed with Indian and Chinese companies. Also, both sides can jointly develop a platform on policy updates and business opportunities for Indian and Chinese companies, it said.

CII and Nasscom also want India to push for a totalisation agreement (on social security payments) with China. This, they said, will help avoid social insurance fees being paid twice by companies for Indian employees being deputed to China — once in India and then again in China. These industry bodies also want New Delhi to take up the issue of the lack of clarity in withholding tax imposed on repatriated profits. Among issues affected the Indian outsourcing firms, CII has pointed out resistance to outsourcing within China due to lack of understanding of benefits and perceived job loss fears in SOEs.

Entering the dragon
* Size of Chinese IT/ITeS market = $46 bn
* India’s current share = below $1 bn
* China’s IT/ITeS market size projected to be $84 bn by 2020
* Chinese govt & soes among potential big buyers of IT services
* By 2020, soes to make 45% of Chinese demand
* Indian IT majors in China: tcs, Infy, Wipro, hcl
* India seeks long-term work visas for IT workers in china
*  Totalisation pact with china proposed


Wipro, Infosys turn to AI, design thinking in subdued IT market

May 28th, 2015

India’s leading technology outsourcing firms Infosys Ltd and Wipro Ltd are banking on so-called design thinking and artificial intelligence (AI), respectively, to win large deals, as they struggle to raise revenue in a subdued market for information technology (IT) services.Outsourcing9

Bengaluru-based Infosys claims that design thinking, a creative and systematic approach to problem-solving by placing the user at the centre of the experience, has helped it win five large deals. Two of these orders exceed $100 million each in annual revenue. Meanwhile, cross-city rival Wipro plans to offer its AI platform Holmes to up to a third of its 1,000-plus clients in the next 24 months, claiming that it could be an “account opener and game changer”.

“We have won five big deals, two of them are over $100 million. Just in the last six weeks,” Infosys chief executive officer Vishal Sikka said in an interview last week. “We are not just responding to requests but being proactive and bringing clients to workshops. See, RFPs (requests for proposals) are controlled by third party… But then, you can always influence the client to become a strategic partner through design thinking.”

Infosys is trying to improve the effectiveness of its sales team by incorporating elements of design thinking, Mint reported on 29 April. Sikka’s push to drive more business comes after his company’s March quarter revenue fell short of forecasts.

Wipro, under chief executive T.K. Kurien, too, has been struggling to record a double-digit revenue growth for the last four years, and is now positioning Holmes in managing helpdesks for companies.

“In the next two-four years, one of the biggest disruptions will be (an IT vendor having) an AI-platform. I believe this will be as big as the Internet disruption. Customers have exhausted their levers of enhancing productivity. So, IT vendors need something which can promise productivity,” said K.R. Sanjiv, chief technology officer of Wipro.

Wipro is pitching Holmes against International Business Machines Corp.’s cognitive supercomputer, Watson, but according to Thomas Reuner, managing director of IT outsourcing research at US-based HfS Research, Wipro’s new cognitive platform, built with open source tools, also has features of New York-based IPsoft’s humanoid programme Amelia. All these platforms claim to improve productivity by allowing IT vendors to deploy fewer engineers for repetitive manual tasks.

Experts believe these measures reflect underlying changes shaping outsourcing deals, as customers across industries press IT vendors to help them with more “transformative changes” to improve their business operations.

Measures like AI and design thinking are needed for survival, said Sid Pai, partner and president of outsourcing advisory ISG’s Asia Pacific division. “A firm with a strong digital story and the ability to invest ahead of the curve on product bets in this space (fully accepting that some of these bets will work, while others will fail) will be able to gain market share in the evolving marketplace”.

“These are necessary strategic steps to position themselves for sustained leadership in the digital era,” said Bill Huber, managing director at Alsbridge, a US-based outsourcing advisory firm. “Winning will require innovation, customer centricity and business outcomes. Vishal’s design thinking campaign clearly has this in mind.

Similarly, the investment in Holmes should help Wipro transcend process centrism and move toward more natural fast integration of business insights into every operational process”.

For this reason, both Infosys and Wipro believe these technologies should help them match the revenue growth recorded by larger rivals such as Tata Consultancy Services Ltd and Accenture Plc.

“It (Wipro Holmes) will be an account opener and will be one of the key solutions through which we will lead into (winning new deals),” said Sanjiv of Wipro.
However, experts believe that even after taking these measures, it will be a tall task for Infosys and Wipro to get back to Nasscom projected revenue growth of at least 12% for 2015-16 as both are struggling to record even $1 billion worth of deals in a quarter.

“For companies of their scale, they need to have to have a quarterly TCV (total contract value) of at least $1.5-2 billion. So, will these measures help them get there? Difficult. It is not like others will be just sitting and watching the game,” said the head of research at a Mumbai-based brokerage, who did not want to be named.

“It could be tricky for Holmes to jump to 25% client usage in 24 months without an established pilot programme or deep-rooted AI partner network,” said Amy McLaughlin, a research analyst at US-based Technology Business Research Inc.

Typically, pilot projects take anywhere between six and nine months before a firm outsources a large deal to an IT vendor, according to industry executives.
“In a decelerating IT services market, combined with India-centric companies’ reputation as “fast followers” as opposed to market leaders, I’m not convinced that Wipro’s Holmes platform is in position to grow at such a rapid rate,” McLaughlin said.

Some analysts, like HfS Research’s Reuner, said though initiatives such as design thinking and AI are “important sign posts for the direction of travel for both the supply and demand side”, the “efficiency of the sales engine and the access to talent” are more important.

“Many of these initiatives will enhance offerings and will help to optimize margin but won’t be sold as stand-alone offering,” said Reuner.


Infosys creates healthcare unit HILife

May 26th, 2015

In what appears to be an effort to increase its focus on healthcare, Infosys will transfer the healthcare business of its US-based, wholly-owned subsidiary Infosys Public Services to itself for a consideration of $100 million . Outsourcing4

In its latest annual report, Infosys said it has created a new business unit called HILife to provide services to healthcare, insurance and life sciences businesses. The new unit will presumably combine its existing healthcare and life sciences business, which accounts for about 7% of its overall revenue of $8.7 billion, with the healthcare business of Infosys Public Services.

The thrust in healthcare comes at a time when industry rivals like Cognizant and Wipro are aggressively focusing on the space, with Obamacare opening up outsourcing opportunities that aims to brings millions of people under the healthcare insurance fold in the US. Both healthcare providers and payers as well as life sciences customers, including pharmaceutical, biotech and medical device companies, are outsourcing work to IT service providers.
Almost a quarter of Cognizant’s revenue comes from healthcare, while for Wipro, that figure is close to 12%, both significantly higher than for Infosys. Last year, Cognizant acquired TriZetto, a healthcare IT software and solutions provider, for $2.7 billion to strengthen its healthcare capabilities. Wipro’s healthcare business is expected to touch $1 billion this fiscal.

In his note to shareholders in the annual report, Infosys CEO Vishal Sikka described the company’s full year performance as “average”. “There were hard fought battles in a difficult climate, one in which clients’ expectations are changing, new emerging technologies are rapidly coming to market and where the landscape of services companies has become vastly more competitive,” Sikka said. He said the company faced internal challenges that lagged growth and a string of senior level exits put pressure on its business and performance.

India’s second-largest IT services firm’s growth lagged those of its peers last year. Revenue grew 7.1%, just about meeting the lower end of its guidance of 7%-9%.

“When we look at Infosys today, we can see that it has been a year of great transition for the company…We are learning to work in a new environment and in new ways and it has been a difficult learning experience. But with learning comes the promise of renewing ourselves and the opportunity to pursue entirely new horizons,” Sikka said.


Indian IT firms like TCS, Infosys to gain from HP’s enterprise services cost cuts, say analysts

May 25th, 2015

Hewlett-Packard’s decision to cut $2 billion (about Rs 12,700 crore) in costs in its enterprise services business could open up opportunities for Indian technology firms such as Tata Consultancy Services and InfosysBSE -0.08 %, said analysts tracking the development. Outsourcing48

Infrastructure contracts such as HP’s $400-million data centre outsourcing deal with oil company BP in 2010 and its $700-million deal with German energy provider E.ON could be taken over by Indian firms when renewed, they said. HP’s troubled enterprise services businesses provides technology consulting, outsourcing and support services and competes with companies such as TCS, Infosys, Wipro, IBM and Accenture.

“In the infrastructure space, certainly they are being challenged by cheaper Indian providers,”said an Indian IT industry consultant, declining to be identified. “And the constant round of cost-cutting is a distraction and makes them less competitive.”

The 75-year-old company faces increasing pressure in India where its pricing is much higher than that of traditional outsourcing firms, and some shedding of contracts will happen with the split, giving Indian IT companies an opportunity to take over HP’s market share, said a second industry expert who also did not want to be named.

“HP has been in constant restructuring for a while; the whole company has been in flux,”said Tom Reuner, managing director at HfS Research. “It’s caught between two big rocks –the secular trend of asset light, more cloud-based IT and its own internal troubles.”

The planned cuts in the enterprises services division can come from staff reductions, moving more work offshore, delaying or eliminating investments, and writing down assets that are being deprecated, said Peter Bendor-Samuel, chief executive at consulting firm Everest Group.


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