Infosys Technologies recession and future strategies

Infosys Technologies (IT), India’s second-largest software exporter which posted a 17.3 per cent rise in the first quarter net profit at Rs 1,527 crore, expects a year-on-year decline in revenue at 4.6 to 3.1 per cent as economic conditions are expected to remain flat. In an interview with CEO and MD say the company is focusing on other revenue generating streams, like filing more patents for commercialisation and licensing, and non-linear initiatives.
The company is focusing on increasing their revenues from commercialisation and licensing of patents. As part of their new engagement model, the focus has changed to commercialising the intellectual property from merely developing it.
So we are increasing IP filings every year. They had filed 100-200 applications in India and US, of which they have got patents for close to five developments. The innovations are in the areas of software engineering, sensor networks for various industries, business processes, among others. They invest 1 per cent of their revenues, or $45 million, in R&D annually.
The differentiation that their patents would bring in would enable us to offer more specialised products, which can be further fine tuned to suit clients’ requirements. Indirectly, using these patented developments is expected to improve employee productivity by 5 per cent annually. Licensing our patents would also bring in additional revenues.
Another focus area would be our non-linear initiatives. This currently makes up for less than 5 per cent of our revenues, but this is one thrust area now since clients’ purchase behavior, especially in emerging markets like India and China are changing. For instance, clients are looking at services that come with variable cost, instead of a fixed cost and purpose.
IT are looking at acquiring companies which are 10 per cent of revenues in the range of $450-500 million. The acquisition is expected to help diversify their client base, especially at a time when growth has been flat from traditional revenue streams like the banking, financial services and insurance sector, besides retail and manufacturing. Also, IT are pursuing deals worth $1 billion in this quarter and have 12-15 deals in the pipeline.
IT would invest in expanding into new markets like the Middle East, South and Latin America, India and China, so that their volumes do not suffer. Also, IT is looking at introducing new retail solutions and IPTV offerings. IT is also looking at new industries, like healthcare and energy sectors.
Currently, 97 per cent of their $4.6-billion business comes from exports and 3 per cent from India.
Over the long-term, IT expects to locally employ 15 per cent of their workforce, up from 4 per cent right now. This is because a lot of their services are on site and, as they expand into other geographies where English is not a widely used language, they need local employees who know the local language and requirements.
Early recovery could be visible from 2010. Currently, Infosys [Get Quote] is focusing on remote delivery of services because the market share of this model is still very small and, therefore, can ensure more growth opportunity. Once demand picks up, IT would look at infrastructure expansion.
Also, fresh recruitments would start only after demand picks up. IT had made 18,000 offers in April 2008 to campus recruits. IT had asked all of them to join them and most of them have agreed. For existing 140,000 employees, IT has deferred increments and promotions for this year. Otherwise there has been no pay cut or any drastic cost-cutting initiatives.