Infosys cuts sales outlook as companies curtail IT spending

Bangalore: Infosys cut its annual sales forecast as companies worldwide rein in IT spending and shift to cloud-based software services, sending its shares lower.
Asia’s second-most valuable exporter of software services is now predicting 10.8 per cent to 12.3 per cent growth in US dollar terms for the year ending March, down from a previous 11.8 per cent to 13.8 per cent. Its stock had slid more than 8 per cent as of 10:42am in Mumbai.
Infosys and its rivals are under pressure as economic uncertainty prompts corporations and government agencies to tighten their belts. The proliferation of customisable internet-based software is also eroding appetite for the sort of outsourcing that the company specialises in. Chief Operating Officer U.B. Pravin Rao has warned of a bumpy fiscal 2017.
"The numbers are disappointing and they are going to face a challenge getting back to the driver’s seat in the remaining three quarters,” said Thomas George, a Bangalore-based senior vice president at CyberMedia Research. "It’s not a very encouraging future guidance and we can’t even write this off as a one-off weak performance.”
Rising global volatility, intensifying competition and Britain’s decision to depart the European Union is fueling uncertainty for Infosys’ industry. Worldwide IT spending is forecast to be flat in 2016, according to Gartner.
The reduced outlook came after Infosys posted first quarter sales that lagged estimates. Revenue for the period was Rs167.8 billion ($2.5 billion), compared with analysts’ projections for Rs170.3 billion.
"Global IT spending growth is best described as lackluster,” John-David Lovelock, a research vice-president at Gartner, said before the results were released. Businesses looking to save are instead turning to technology such as internet-based software, eschewing the traditional options that Infosys provides. "It is precisely this new breadth of alternatives to traditional IT that will fundamentally reshape what is bought, who buys it and how much will be spent.”
Reviving growth has been a focus for Chief Executive Officer Vishal Sikka, who’s been training employees to think creatively about clients’ needs and driving investments in areas from cloud computing to data analytics.
The company is reporting results after larger rival Tata Consultancy Services (TCS) posted quarterly profit that beat estimates. Infosys reported a 13 per cent rise in first-quarter net income to Rs34.4 billion, matching the average of estimates compiled by Bloomberg.