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Inside Infosys: Increasing volume, monetizing IP are essential for growth

Jul, 17 2017, 5:45 AM

Editor's note: Infosys, which just days ago announced plans to expand its presence in North Carolina and create 2,000 jobs, faces challenges as it seeks to become an even larger tech solutions provider. Investments in proprietary price-competitive offerings can turn the firm into a formidable solutions-led vendor, says an analyst for Technology Business Research.

HAMPTON, N.H. - Temporary performance improvement highlights as shown in its most recent earnings report last week demonstrate Infosys’ efforts to retune its go-to-market messaging and portfolio offerings toward one of a software-like company.

However, Infosys’ solution-led delivery framework remains fragile as the company balances growth and innovation with macroeconomic challenges in key regions and verticals. Adopting automation-enabled services’ cost operating structure at scale will be critical as Infosys tries to avoid commoditization of SI service delivery through development and monetization of proprietary platform-based IP.

In TBR’s 2Q17 Infosys IT Services Initial Response, we will provide in-depth analysis on key developments during the quarter, such as Infosys’ investments and adoption of Artificial Intelligence (AI)-based technologies to offset margin pressure from onshore hiring initiatives. Infosys also expanded its relationship with AWS to drive managed services opportunities.

Strong renewal rate helped Infosys kick off FY18 on a high note; skilling talent in new areas at speed and scale critical for long-term sustainability

Infosys’ revenue expanded 6% year-to-year in U.S. dollars to $2.65 billion as robust account management, executed through its Zero Distance initiative, paid off with renewal business that accounted for 99.4% of total sales during 2Q17 (FY1Q18).

Broad-based revenue growth remained in flux with C&PI&SI service line results improving as adoption of R&D-infused, design thinking-led consulting discussions begins to pay off. At the same time, pricing pressure in legacy service lines such as application maintenance offset benefits from automation in service delivery, pressuring BITS performance. Infosys reported revenue from new services and software accounting for 8.3% and 1.6%, respectively, in 2Q17.

TBR will closely monitor the evolution of these newly reported metrics as Infosys recalibrates focus on commoditizing service areas while emphasizing growing sales from new services and software.

This move could be a double-edged sword for Infosys if it does not synchronize the development of its skilled bench with client demand for scalable digital transformation awards.

Operating margin remained flat at 24.1% as a percentage of revenue in 2Q17, as delaying employees’ wage increases at 6% (on average, effective July 1) helped it offset rupee appreciation against the U.S. dollar as well as an increase in subcontractors’ costs leveraged to develop and deliver solutions and services in new areas.

(C) TBR





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