A consumption slowdown is likely to dent the revenues of software companies.
Infosys Technologies, India’s largest computer-service provider by market value, said a slump in orders from financial clients will probably spread to retail and manufacturing customers.
“The impact is going to be widespread,’’ chief executive officer Senapathy Gopalakrishnan, 53, said in an interview yesterday at the company’s headquarters in Bangalore. “The most difficult part is we don’t know when stability will come.”
Microsoft Corp. CEO Steve Ballmer said last month that the global credit crunch will discourage corporations from investing in computers and related services. Gartner Inc. said this month technology spending growth may slow to 2.3 percent next year, less than half the research firm’s previous projection.
“Right now, what they are dealing with is the shock of contraction,’’ Phani Sekhar, a Mumbai-based fund manager at Angel Broking overseeing Rs 65 crore ($13.3 million) in Indian stock investments. “When corporate planners begin to integrate cost-cutting into their business models, that is when the turnaround will happen.’’
Infosys, which counts Citigroup Inc. and Bank of America Corp. as customers, generated a third of its revenue from financial firms last quarter.
Irrelevant findings
Infosys, which cut its earnings forecast last week, is repeating a client spending-plan survey because the deterioration in the financial markets in the past month has rendered the company’s previous one irrelevant, Gopalakrishnan said.
Financial companies are reeling from a global financial crisis that led to the downfall of firms including Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Bear Stearns Cos. Wall Street may lose as many as 35,000 jobs in two years as the impact of the credit freeze spreads, New York City Comptroller William Thompson’s office said this week.
The proportion of Infosys’ revenue contributed by banking financial services clients declined to 33.4 percent during the quarter ended Sept. 30, compared with 36.5 percent a year earlier. Clients in the industry say, “we don’t know what is happening, what is the situation, what is our situation and so we are not ready to discuss,” Gopalakrishnan said.
Driving Sensex down
Infosys has fallen 23 percent in the past three months, the fourth-largest contributor to the benchmark Sensitive Index’s 23 percent drop during the period. Tata Consultancy Services, Infosys’s only bigger Indian rival by revenue, has declined 41 percent.
Goldman Sachs Group Inc. last week cut its recommendation on the Indian software-service industry to “cautious’’ from “neutral,’’ citing lower earnings expectations because of the turmoil in the financial markets.
Microsoft’s Ballmer said in an interview last month that demand for computer software will probably be hurt by the US financial crisis. Technology spending next year may fall as much as 5 percent, the first decline in the $3.4 trillion market since 2001, according to estimates by Jane Snorek, an analyst at First American Funds in Minneapolis.
The author is a Bloomberg News columnist. The opinions expressed are his own
