Infosys to Cash In on Recovery with New Business Segments

As the outsourcing industry eagerly awaits a recovery around the corner in 2010, Infosys Technologies Ltd, India's second biggest IT services provider is expect four of its new businesses to take off. These segments - infrastructure management, validation, independent testing, and system integration - are projected a billion dollars each to Infosys' profits.

This strategy is likely to decrease its dependence on low-end commodity offerings where competition is relatively high and profits are short. Independently each of the aforementioned business segments contributes between $250 million to $300 million each year.

According to its guidance posted in October, Infosys is expected to rake in between $4.6 billion and $4.62 billion in 2009 as far as total revenue is concerned.

S.D. Shibulal, the COO at Infosys told livemint.com, the online portal for the Wall Street Journal that the companies' go-to-market strategies at the top are the same. Infosys is still a consulting player or a partner in outsourcing. The company is involving clients in the new business models because it sees more channels for growth. Infosys sees a 5-year strategy for each segment in terms of growth, Shibulal said.

Typically, Indian software services companies have provided traditional services like application development and application maintenance to clients in U.S. and Europe. This accounts for approximately 40% of their revenue. However, analysts say that competition has increases and pricing pressures stemming from the recession-phase has decreased profit margins. This is making Indian vendors look at new segments and new geographic locations.

Billionaire investor and chief of research at SBICAP Securities Ltd, Anil Advani said in a statement that new business verticals, geographies and upcoming segments are bound to push growth. Overall, major Indian service providers are making use of this same strategy, going forward. Advani added that this is the only means of growth for these firms.

NASSCOM has speculated that software exports in India will grow at 4% to 7% in 2009, capping $48 to $50 billion. Incidentally, this is the slowest growth rate in 10 years, according to the trade organization. The decline comes on the heels of a slowdown in tech spending stemming from the global economic downturn.

However, analysts say that as the U.S. economy rebounds sometime in 2010, clients are expected to lift their IT spending freeze. This translates to an opportune time for Indian firms like Infosys that are poised to cash in on the recovery.

For the second quarter ending in September, the leading Indian IT software services provider Tata Consultancy Services Ltd, Infosys, and Wipro have revealed growth for the first time in six quarters.