2010 Might Not Be a Good Year for Infosys

Includes: ELN, INFY, NSTC
by: Outsourcing Insider

by Audrey B.

Last December, I wrote an article on Infosys’s (NASDAQ:INFY) big week, wherein the outsourcing company scored numerous deals and expanded its business in multiple areas around the world. However, since ringing in the New Year, it seems that, at least for now, the company has lost a little bit of its steam, and acquisition of contracts have waned.

The company’s release of its Q4 results on the 12th of January of this year was highly anticipated in the market, as many view the results of the company as an indicator of the performance of its peers (Conference Call Transcript). Infosys beat analysts expectations in that regard by posting better than expected profits, which many took as a sign of recovery and improvement for outsourcing companies from the impact of the global economic slowdown. From the period of October to December of 2009, the company added 32 new clients to its roster, and for 2010, Infosys was said to be chasing multiple deals in the $100million - $300 million range.

Fast forward to the second week of February and we see a different picture. Since the 12th of January, the company has acquired only one deal, with biotech company, Elan Pharmaceuticals a subsidiary of Elan Corporation (NYSE: ELN). Although the financial details of the deal were not disclosed, when compared with Infosys’ performance back in December, the outlook for Infosys’s upcoming quarter results could show weaker performance for the company. Not only that, but the multiple ‘big deals’ in the $100 - $300million range, have yet to materialize.

Rather than focus on client acquisition, Infosys is focusing more on the expansion front, emphasizing on building a bigger workforce in anticipation of more outsourcing orders. Just recently, Infosys has spoken up about hiring expatriates for the company, lamenting India’s visa rulings for foreign workers. Infosys's hiring target for this fiscal year is 25,000 people, moved up from its previous target of 16,000 prior to its Q3 results. With this in mind, the company has been staking out universities all over India for future employees.

It’s a gamble for the company to focus efforts on expanding a workforce with fewer than expected new clientele in its roster. It doesn’t help that emerging nearshore rivals are gaining steam, attracting attention from big name clients such as GE (NYSE:GE), Thomson Reuters (NYSE:TRI) and Citigroup (NYSE:C). And even though companies such as Ness Technologies (NASDAQ:NSTC) of Israel, for example, have been hurt a bit more than most by the global economic slowdown, it has still managed to score two new contracts for February, first is a $19 million land registry deal for Czech Geodetic and Cadastral Office on the 1st of February, and an $11 million contract with Israel’s Ministry of Immigrant Absorption on the 8th of February, not to mention an extension of the contract with Thomson Reuters Israel.

While it is expected that Infosys has its own business goals to pursue, upon evaluation, Infosys’s performance for one and a half months in 2010 is certainly less than stellar when compared with its performance in just one week in December 2009. If business for the company fails to improve before the next quarter ends, then 2010 might not be a good year for Infosys.

Disclosure: No Position

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