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Infosys likely to miss dollar guidance for Q3, says CLSA

Infosys likely to miss dollar guidance for Q3, says CLSA

Bangalore: India’s second largest software services firm, Infosys Technologies Ltd, may miss its guidance for the three months ended December in dollar terms because of lower volume of business from the US and Europe, where customers are tightening their budgets due to a recession, according to a report released on Monday by brokerage CLSA Asia Pacific Markets.

Infosys, which will announce its results for the third quarter on 13 January, may cut its annual revenue forecast in dollars for the third time in as many quarters.

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“This will likely indicate that despite the Oct-08 cut (in forecast for annual revenue), volumes have turned even worse than Infosys’ own conservative estimate," CLSA analysts Bhavtosh Vajpayee and Nimish Joshi said in a note to clients.

Infosys has projected its revenue for the third quarter to be between $1.17 billion and $1.22 billion in dollar terms. In rupee terms, it forecast revenue to be in the range of Rs5,519 crore and Rs5,730 crore.

For the year to March, it forecast revenue of between $4.72 billion and $4.81 billion in dollar terms and Rs21,309 crore and Rs21,731 crore in rupees.

The October-December period is usually the weakest quarter for IT services firms because of the large number of holidays that fall in this period —both in India, and in Europe and the US. Indian firms derive much of their revenue from so-called time and material contracts or by billing by the hour.

CLSA expects Tata Consultancy Services Ltd, Infosys’ larger peer, to see a 3.5% quarterly decline in dollar revenues with the firm ending the year to March with a 8% fall in revenue (excluding acquisitions). TCS reports its results on 15 January, followed by Satyam on 16 January and Wipro on 21 January.

India’s software firms have been hit by a recession in the largest market for their services, the US. Technology researcher IDC Corp. on 31 December said growth in global technology spending will be reduced by half to 2.6% in 2009, due to a recession in the world’s two largest technology markets—the US and Europe.

“December quarter results from Indian technology (firms) are likely to indicate continued worsening in demand," said the CLSA analysts.

Last month, India’s software lobby, National Association of Software Services and Companies said it may revise downwards its July prediction of 21-24% growth due to slowing orders from customers. On 5 December, Infosys chief executive S. Gopalakrishnan warned that the industry’s growth could halve to 15%.

“While currency movement has favoured techs (software firms) through 2008 and benefits in margins will be seen in December quarter as well, the 20%+ rupee move could not prevent a second consecutive quarter of underperformance for Indian (tech) firms, barring Infosys," the CLSA note said. “We see continued sector underperformance ahead".

Indian software firms bill most of their clients in dollars and have benefited from the currency’s gain against the Indian rupee in past months.

The CLSA analysts warned that most Indian software firms are likely to avoid commenting on their performance on the year to March 2010, as technology budgets for 2009 are yet to be finalized.

Firms in the US and Europe typically finalize their technology budgets by December.

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