Infosys Technologies, India's second largest outsourcer, reported Thursday strong growth in revenue and profits for the quarter ended Dec. 31, but warned that the outsourcing market continues to be uncertain.
Infosys's revenue in the quarter was US$1.6 billion, up 28.7 percent from the same quarter in the previous year. Net profit was $397 million, up 18.9 percent. Infosys reports in accordance with International Financial Reporting Standards (IFRS).
The company warned that the weak economic recovery in the U.S. and the sovereign debt crisis in Europe could impact industry growth in its two largest markets.
Customers in the U.S. are finalizing their budgets on time, which is an improvement on last year, and although growth in spending is slight, there is a sharper focus on doing work offshore, said Ashok Vemuri, a member of Infosys' executive council, and senior vice president and global head of its banking and capital markets group.
The company has forecast that revenue for its fiscal year ending March 31 will be a little over $6 billion, which represents growth of around 26 percent on the year.
Customers are consolidating their suppliers to a smaller, more manageable number, and this is helping larger Indian outsourcers like Infosys, said Jimit Arora, research director at Everest Group. However, customers are asking for lower prices and this is putting pressure on the profits of Indian outsourcers, he added.
Prices for commodity services are unlikely to move up, because of strong competition, and Infosys is hence focusing on value-added services in areas such as business transformation and consulting, Vemuri said.
Indian outsourcers have typically sold services on a "time and materials" basis, that consisted of deploying a certain number of people over a specific time period for client work, but clients are increasingly wanting to buy services based on outcomes, Vemuri said.
In India, staff costs are also going up as hiring takes off again, and Indian outsourcers compete for staff with the Indian operations of multinational services companies like IBM, Dell, Accenture, and Hewlett-Packard.
Infosys hired 5,311 more staff in the quarter taking its total number of staff at the end of the quarter to 127,779. Staff attrition at the company was 17.5 percent, up from 11.6 percent in the same quarter in the previous year.
A lot of things could however go awry for India's outsourcing industry in the months ahead.
The market for Indian outsourcers could start to slow down by the second quarter of this year, as a lot of the growth in business in the last few quarters was pent-up demand from the recession, Arora said. Customers are evaluating new expenses in IT services very closely, he added.
Global technology spending may slow this year from 5.4 percent in 2010, Gartner said last week. While the global economic situation is improving, the recovery is slow and hampered by a sluggish growth outlook in the important mature economies of the U.S. and Western Europe, Gartner added.