Infosys CEO and Managing Director S. D. Shibulal has said that the industry is facing a tough environment, and warned that there has not been enough change in the global economy to allow the software services exporter to make a quick turnaround and realise early results.
“The global economy environment continues to be challenging for us. The U.S and Europe have their own issues. Unfortunately, there is no event in the near future that will make a turnaround in both of these aspects. Most of our conversations lead us to believe this will be a protracted recovery. Therefore, the short-term is challenging, which will have an impact on realising early results. However, I am confident and feel we are fine in the medium and long term,” he said.
Executive Co-Chairman of Infosys Kris Gopalakrishnan agreed, while adding: “we are all paranoid about our position in the industry, and are working harder than ever to make sure we are doing all the right things. Strategy is about making the right choices. And, only the future will tell. While our early results are good, the wins we are getting reinforce that. But we are hopeful that it will play out.”
Mr Shibulal and Mr. Gopalakrishnan were at The Hindu on Monday, and interacted with journalists of the group publications.
Mr. Shibulal’s comments come at a time when the economic slowdown has hurt North American and European markets, which has raised concerns for outsourcing companies. While the company believes its ‘Infosys 3.0 strategy’ (from services to product and platform solutions) will payoff in the long-run, it has witnessed some short-term discomfort, with rival Cognizant recently overtaking it in terms of dollar revenue.
“We get only 38 per cent of our revenue from application development as compared to over 90 per cent in the late nineties. Consulting now gives us close to 30 per cent of our revenue. This is an important revenue track we have built over the last ten years as it helps us operate from the boardroom rather than the boiler room,” Mr. Shibulal said.
However, Mr. Gopalakrishnan rejected concerns that the company was not looking at acquisitions aggressively enough, in light of the firm’s cash balance which stands at over Rs.20,000 crore.
“We don’t want to do an acquisition for an acquisition’s sake; we don’t want to do an acquisition because valuation is cheap. We want to do one because it adds value to the company. That’s why you see us becoming more deliberate about these things. As Murthy used to say, profit is an opinion, cash is real” Mr. Gopalakrishnan said, pointing out that the company’s net income to free-cash flow was close to 80 per cent, compared to the industry average of 40 – 50 per cent.
“The tech industry, by nature, is very risky, and typically companies have had large cash balances. From an Infosys perspective we say that the company must have sufficient cash to run the business with zero revenue for one whole year, if need be,” he added.
When asked whether Chinese companies would soon become a competition in the IT services industry, Mr. Gopalakrishnan denied any pressure as of yet, claiming that it would come only in the future.
“Industry has never been afraid of competition. It is assumed that Chinese competition will come three to five years in the future. Not today. Many of the Chinese companies are system integrators, whereas many of the large Indian companies are pure services companies. Also the largest Chinese company has maybe 10 – 15,000 employees, the largest Indian one has over 150,000. So there are significant differences, “he said.