India's Infosys on track, says Murthy


China will be a good competitor for Indian software exporters, says Infosys CEO Narayana Murthy

By CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia (CNN) -- Indian software services giant Infosys has reaffirmed it is on track to meet its second-quarter sales and profit targets, despite the downturn in the global economy and the September 11 terror attacks.

Infosys chairman and chief executive NR Narayana Murthy told CNN this week that the company would report revenue of between $131 million to $134 million in the quarter to September 30, with earnings per share for its American depositary shares of 29 to 30 cents.

Infosys, which sources about 70 percent of its business from U.S.-based clients, will deliver its second-quarter report next Wednesday (October 10) at its Bangalore headquarters.

Two weeks ago Murthy was forced to issue a statement about Infosys' financial performance following what he said were "totally unfounded" adverse rumours.

'No material development' to revise outlook

He said then that Infosys saw "no material development" to revise its revenue and earnings estimates for the full year to March 2002. It made $137.5 million on revenue of $413.9 million in the year to March 2001.

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Murthy told CNN the company was still talking to clients about the outlook for the rest of the year but because of the terror attacks in the U.S., "we have to be sensitive talking business right now".

Murthy, who calls himself the Infosys ambassador since stepping back from the managing director's role three years ago, said that while the U.S would always be an important market, other regions were growing rapidly.

"In the last couple of years we've been pressing the pedal in both Europe and Japan, and also in East Asia and Australia."

Visionary in software leap forward

Murthy said his ideal business balance in the future would be 50 percent from the U.S., 25 percent from Europe, 7 or 8 percent from Canada, 10 to 12 percent from Japan, Australia and East Asia, and 3 to 5 percent from India.

Murthy is regarded as one of the leading visionaries in India's great leap forward into the software services field. With six other software professionals, he co-founded Infosys in 1981 and has served as its chairman and chief executive since then.

After Infosys achieved compound annual growth of 70 percent a year for the past six years, he shocked IT industry observers in April this year when he warned that growth would be just 30 percent in 2001-02. Murthy said this was based on the company's close links to the market.

India's National Association of Software and Service Companies (Nasscom) said in August that Indian software exports had grown 52 percent in the June quarter, down from 65 percent for the same quarter last year.

Nasscom said then that despite the global IT slowdown, it was still tipping software exports of about $8.4 billion, or a rise of 41 percent for the year to March 2002.

However, observers expect Nasscom to revise its forecast downwards after Infosys and other top software exporters report from mid-October onwards.

Competition from China increasing

Murthy said it was clear competition for India was on the rise, particularly from China.

"I am a great admirer of China. It has shown great discipline and dedication in attacking new export markets. China is working furiously on its English-language capability and its quality control."

Calling China "a worthy competitor", Murthy said it would be a good stimulus.

"As China becomes stronger, it sends a clear signal that we in India have to work harder to stay ahead."

Looking elsewhere in the region, Murthy said the Japanese market had doubled for Infosys in the year to March 2001 and despite the overall economic gloom there he was excited about its prospects.

"It looks promising. For the past seven to nine years, there has always been gloom in Japan. But people need to adapt to the new paradigm, and I see a lot of action there."

U. S. still the primary market

Murthy said Infosys was a company built on globalization and would chase opportunities wherever it saw them. But it looked first for markets where there is the least friction to business.

For that reason, the U.S would remain a primary focus.

"It is the world's most competitive market. Secondly, U.S. corporations realise the power of technology and are eager to use it to increase productivity. And thirdly, it is the world's most open market for outsiders," Murthy said.

Murthy, who holds a 7 percent stake in Infosys that at the peak of the IT boom in early 2000 was worth more than $1 billion, said he was not worried by the drop in the company's share price.

It has more than halved to 2380 rupees since the start of the year, and is down 82 percent from its record high of 13,800 rupees reached in March 2000.

"I don't invest, so I don't understand the share market. But for the last 32 or 33 quarters, we have always beaten analysts' expectations with our financial performance," he said.