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Infosys cuts revenue outlook on global crisis

Posted by Yogesh on Friday, 10 October, 2008

* Lowers dollar revenue forecast on global economic crisis

* Will not increase takeover offer for Axon

* Net profit beats market forecast, helped by weaker rupee (Adds analyst comment, employee addition targets, updates share price)

By Sumeet Chatterjee

BANGALORE, Oct 10 (Reuters) – Infosys Technologies cut its forecast for full-year dollar revenues due to the global financial crisis, knocking its shares as much as 17 percent even after it beat expectations with a 30 percent rise in quarterly profit.

India’s No. 2 information technology services exporter also said it would not increase its 407 million pound ($702 million) takeover offer for British consultancy Axon, after smaller rival HCL Technologies trumped it with a 441 million pound bid.

Infosys said on Friday the offer price was fair and the decision was also based on the current economic environment. Chief Executive S. Gopalakrishnan said the company, which is sitting on a $1.9 billion cash pile, was still open to acquisitions.

India’s export-driven software service firms, used to a scorching pace of growth, have been badly hit by a slowdown in the United States, which contributes more than half their revenue, and the spreading global financial turmoil.

“Now that Infosys has cut guidance, other IT companies may follow suit. The bad times for IT companies may continue for a year at least,” said Harit Shah, research analyst at Angel Broking.

Infosys (INFY.O: Quote, Profile, Research, Stock Buzz) forecast revenue for the year to March would grow 13.1-15.2 percent in dollar terms, down from July’s forecast of 19-21 percent. It also cut its earnings per share forecast to $2.24 from $2.32-$2.36 projected in July.

“We have revised our U.S. dollar revenue guidance to reflect the current economic situation and the drastic depreciation of major global currencies against the U.S. dollar,” Gopalakrishnan said.

Shares in Infosys slumped more than 17 percent to their lowest in nearly 3-½ years but, by 0730 GMT, had pared losses to be down 4.5 percent in a Mumbai market .BSESN that tumbled nearly 8 percent.

Average billing rates fell 0.3 percent in July-September, but Infosys was not seeing any big project cancellations and was optimistic about the medium-to long-term business growth, Gopalakrishnan said. It added 40 new clients in the quarter, taking its total client tally to 586.

Earlier this week, IBM (IBM.N: Quote, Profile, Research, Stock Buzz), the world’s biggest computer services company, posted a higher-than-expected preliminary quarterly profit and affirmed its full-year outlook.


Infosys cut its forecast as it wanted to be cautious after the financial turmoil of the past month, Gopalakrishnan said.

“We’re not seeing any big project cancellations from any client. We’re not seeing any drastic (pricing) renegotiations from any clients. For us, the pricing environment is stable, it’s business as usual,” Chief Financial Officer V. Balakrishnan said.

Infosys, which develops applications, designs supply chains and offers back-office services, said consolidated net profit rose to 14.32 billion rupees ($291 million) in July-September, its fiscal second quarter, from 11 billion reported a year ago.

A Reuters poll of brokerages had estimated a net profit of 13.99 billion rupees for Infosys, which counts ABN AMRO, Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) and Philips Electronics (PHG.AS: Quote, Profile, Research, Stock Buzz) among its clients.

An 8.4 percent drop in the rupee against the U.S. dollar in July-September was positive for Infosys, which gets more than half its revenue from the United States.

It added a net 5,927 employees during the quarter and officials said the company maintains its full-year gross hiring target of 25,000 employees.

Shares in Infosys fell 19 percent in July-September, worse than a 4.5 percent fall in the main Mumbai index .BSESN. Source Reuters


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