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Infosys: too conservative?

Jens Butler | July 29, 2009
A common theme in the offshore industry today is flat or falling revenues, and Infosys is no exception.

What Infosys now needs to do is to convert some of its pipeline and to farm more of its existing and loyal customer base. However, as with its rivals, the delaying of orders by customers, mainly due to decision-making moving higher up in the business, is hurting.

From an industry mix perspective, Infosys still has a balanced portfolio, except in its complete lack of exposure to the public sector. Matching its underexposure to the Indian/domestic market (only 0.9 per cent) raises the question of why Infosys has not managed to crack the largest public sector by employees in the world, in its home country.

Margin management will not drive new business

Infosys has traditionally maintained an operational 75/25 offshore/onshore split for quite a period now, which has to some extent facilitated its superior margins, and it appears that its peers are starting to shift down this path too. However, given that Infosys perceives that client attitudes are changing and require a closer relationship, hence new investment in sales and additional onshore resources, how much will this impact its historical ability to manage margins?

Infosyss failure to acquire Axon at the end of 2008 has left the vendor with a healthy war chest of $2.27 billion, which could be available for acquisitions or for investing in an organic sales growth drive. With this failed acquisition and Infosyss ongoing consulting gap, small steps have been made (opening operations in Australia, for example), but Infosys needs to decide what role it wishes a consulting offering to play continue to contribute revenues and high margin or aid in growing the business further?

Jens Butler is principal analyst with Ovum. 


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