India’s Infosys says quarterly profit up 1.6 pct, but warns of steep revenue drop

By Erika Kinetz, AP
Friday, July 10, 2009

India’s Infosys says quarterly profit up 1.6 pct

MUMBAI, India — Indian outsourcing bellwether Infosys Technologies Ltd. reported a slight rise in quarterly profit and warned of a steep drop in revenue as its global clients struggle to cope with the economic slowdown.

Infosys, India’s second largest outsourcing firm, earned $313.0 million in net income for the quarter ended June 30 based on international accounting standards, a rise of 1.6 percent from a year earlier, it said Friday.

Revenues for the period fell 2.9 percent to $1.12 billion, but still beat analyst expectations.

The company said revenues would decline by 7.1 percent to 8.7 percent, to between $1.11 billion and $1.13 billion, in the current quarter.

Revenues for the fiscal year, which ends in March, will be $4.45 billion to $4.52 billion, the company predicted — a decline of 3.1 percent to 4.6 percent, but slightly more optimistic than its April forecast.

“We’ve had a good quarter,” chief executive S. Gopalakrishnan told The Associated Press by phone. “Medium to long term I’m very optimistic that this is still a growth industry.”

“In the short term, things are going to be challenging, volatile, and unpredictable. That’s why we are cautious,” he said.

Investors hoping for signs of a quick recovery in the U.S. — a crucial market not just for Infosys, but for India’s limping economy as a whole — were likely to be disappointed by Friday’s results.

Executives said high unemployment in the United States, weak retail sales and manufacturing data and concerns about credit card defaults weighed on the company’s outlook.

Volumes declined 1.1 percent during the quarter and Infosys cut prices to hold on to key customers. Gopalakrishnan said he expects revenue per employee to fall 5 percent this fiscal year, mostly due to weaker prices, and is not expecting client spending to pick up until after March 2010.

“The outlook is quite somber,” said Harit Shah, analyst at Mumbai’s Angel Broking. “Whatever we’ve heard about green shoots is not reflecting yet on the ground.”

Many hopefully recall the 2001-2003 information technology downturn, pointing out that offshoring gained traction after the dot-com bust as companies in developed markets took cost-cutting more seriously. But Indian IT firms have yet to see a similar bounce this time round.

Forrester Research predicts that the U.S. market for information technology equipment and services will shrink by 5 percent this year and that the global market will drop by 11 percent, in dollar terms, before spending starts to recover in the fourth quarter.

Infosys, whose clients include Goldman Sachs, Bank of America and UBS, derived 64.7 percent of revenues from North America last quarter, despite long-standing efforts to diversify its geographic revenue base.

Hard-hit financial and insurance companies, which have been the world’s biggest IT spenders, accounted for a third of revenues, slightly less than they did during the same period last year.

Local media have reported that Infosys is bidding for the captive back office unit of Swiss banking giant UBS, in an effort to wean itself from U.S. sales, but officials declined to comment on the possible deal Friday.

Infosys said it added 27 clients during the quarter, down from 49 clients the same period last year, and trimmed its headcount by 945, to 103,905 employees globally.

The rupee’s decline against the dollar — it was an average of 16.2 percent lower last quarter than a year ago, Infosys said — helped results in rupee terms. Quarterly net profit in rupees was 15.27 billion rupees, up 17.3 percent from a year ago, the company said.

Infosys co-founder Nandan Nilekani, who has become a poster child for Indian outsourcing, stepped down as co-chairman and board member Thursday after three decades to lead a new government agency that plans to issue identity cards to all 1.2 billion Indians.

Gopalakrishnan said Infosys would look into bidding on the ID card project.

“We want to increase our business in India. That’s a focus area for us,” he said.

Nilekani and his family own about 3.5 percent of Infosys shares, and the company would ensure that no conflicts of interst arise during the bid process, Gopalakrishnan added.

Infosys shares rose 3.0 percent, to close at 1726.5 rupees, on the Bombay Stock Exchange, beating the benchmark Sensex index, which declined 1.8 percent to 13504.2 points.

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