Infosys sees mixed IT spending trends

Infosys, the Indian software services company, shared details of how some of the industry verticals and regions will be performing in 2014.

Infosys third quarter revenues grew 1.7 percent. Its onsite volume declined 3.4 percent, while offshore volume increased 2.6 percent. Overall volume increased 0.7 percent since its offshore referred mix went up by 1.3 percent.

Infosys operating margin expanded by 1.5 percent sequentially, excluding the impact of the provision of visa-related matters that was made in Q2.

During an analyst call on Friday, SD Shibulal, managing director of Infosys Technologies, said: “We added 54 new clients. The number of $1 million clients went up by 26. The number of $1 million clients today stands at 495. Our growth was predominantly in non-U.S. geographies and Asian verticals.”

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SeekingAlpha has shared the full details of the analyst call.

“Overall, across the verticals, we see mixed trends regarding 2014 budgets. We expect the budgets to be flat across all verticals together. Our revenue productivity went up by 0.7 percent quarter-on-quarter this quarter. However, we continue to see pricing pressure on large deals and commoditized services,” Shibulal added.

During the fourth quarter, the Bangalore-based Infosys will be realigning its business portfolio to further enhance focus on deepening client relationships, increasing market share, creating service differentiation through innovation and agility.

Infosys increased the revenue guidance to 11.5 percent to 12 percent in U.S. dollar terms.

Main industry verticals

The main focus areas of financial services will be digital transformation, risk and compliance-related spending. There is a clear focus on modernization of infrastructure and legacy applications that are influencing some of the client spending as well.

“We are seeing a significant interest in our platform-based offerings in the last 3 quarters within the financial services sector. In insurance, again, we are seeing a mixed bag in terms of clients’ IT budget outlay, while some of our clients have indicated their budgets are going to go up and some of the spending is going to go from nondiscretionary to discretionary as well. In other cases, there is — the budgets are relatively flat, and in few cases, the clients are looking at a bit of a cut,” said BG Srinivas, president of Infosys.

In manufacturing, the overall business momentum remains stable. Infosys is seeing improvements in automotive, commercial, aerospace and industrial manufacturing. There is weakness in the high-tech sector.

Information management, analytics and digital consumers are some of the key things that are creating transformation in its clients’ business. Infosys expects the budgets to remain flat in manufacturing vertical. “Within high tech, seeing a decline in budgets due to the impact of reduced PC sales, while in automotive, commercial aerospace and industrial manufacturing, we are clearly seeing the budgets rise,” Srinivas added.

Infosys says the telecom industry is continuing to have challenges. The wireline sector is under pressure for top line growth. The spend levels have muted as clients continue to see new challenges. The company sees some of the wireless carriers increasing spend in Europe.

IT spend by the energy sector will be marginally up for the coming fiscal. This sector is dependent on core ERP applications, namely SAP, and there are further opportunities in the area of consolidation and upgrades.

Retail, CPG and logistics may be increasing spend in cloud, infrastructure, business intelligence, analytics and ERP-led transformation. For Infosys, the deal pipeline has improved marginally over the last 3, 4 quarters.

Infosys sees large outsourcing deals in life sciences segment.

In resources and utilities vertical, Infosys sees a lot of focus on cost optimization and increasing spend in the areas of cloud, mobility and analytics.

“In addition, in global resources, we see companies focusing on simplifying their operations and improving supply chain efficiency. Budgets for the next year are down in the segment due to revenue challenges facing the clients,” said UB Pravin Rao, president.

In the growth market unit, comprising of Australia, China, Japan and Southeast Asia and Middle East, will focus on cost reduction and consolidation of spend in Australia.

In China, clients are investing in ERP and analytics, after centralizing their operations.

In Japan, demand is being driven by the need to simplify IT and drive revenue-generating spend. Overall, in the region, deal pipeline is decent, though the ticket size is small.

In the services sector, the new age information services companies leveraging digital are increasing spend, while the traditional print media is cutting spend.

“In travel and hospitality segment, we have seen an uptick in spend, driven by economic stabilization and mild recovery in the U.S. We have almost 20 engagements in cloud and Big Data. Cloud is driving the IT organization towards more outcome-based, SLA-oriented constructs. Clients are also excited about the possibilities of contactability and open standards that would help eliminate vendor lock-in and maximize performance,” Rao added.

In mobility, Infosys started over 25 engagements in quarter 3 in the areas of sales force automation, device management and enterprise productivity. Clients are also looking to establish mobile app factories to cater to their mobility requirements. Infosys sees good levels of interest for managed pay-per-use model here as well.

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