Infosys Q1 result execution failure: CEO Vishal Sikka
Infosys CEO Vishal Sikka said the company’s lower-than-expected performance in the June quarter — which spooked the stock markets on Friday — was no reflection of his strategy to move the company away from its focus on lowering costs for clients to one that develops innovative solutions for them. He said it was an execution failure in certain segments of the business and he was taking steps to fix those.
And in an apparent admission of failure to provide appropriate revenue guidance in April, Sikka said one of the big areas he still needed to address is to improve internal processes and make Infosys a real-time company, “including our ability to forecast.” The modest performance in the June quarter — which follows several quarters of good performance compared to most of its peers — forced Infosys to lower its revenue guidance for the full year to 10.5-12%, from the 11.5-13.5% it gave in April. The stock market reaction to that wiped out Rs 23,000 crore of investor wealth in a single day. Some analysts are sceptical about Infosys achieving even this lower guidance, considering that the first quarter is normally one of the stronger quarters.
Sikka said the traditional way of delivering services is under a very structural threat and there is tremendous pricing pressure on it. He attributed the pricing pressure to two major developments: The clients being under tremendous cost pressure and significant improvement in their ability to set up captive centres. A number of leading companies globally has been establishing their own technology centres in countries like India, a trend that adversely impacts the volume of outsourcing.
“The wrong response to this, as I have been saying, is a downward spiral — use cheaper and cheaper people and jam them more into projects faster and faster. That journey ends at one place — at zero. The right response is to transform towards innovation. We need to take projects and services where software and automation that we deliver improves the productivity of the people and frees up people to deliver innovation. If we are not able to do such a transition, the industry will go down,” Sikka told TOI in an exclusive interaction following the company’s announcement of results for the first quarter.
Sikka noted several trends that he said pointed to the emerging success of his strategy. More than one-third of the revenue growth of $55 million in the first quarter, he said, came from new services based on automation and innovation. “The new services grew better than we expected,” he said. Skava, a platform for mobile websites, apps and other digital shopping experiences for large retail customers, and the Edge series of innovative cloud-based software applications for enterprises, have both done well, he said. Mana , the new artificial intelligence (AI) platform, has seen the first successes.
Sikka said where the company ran into problems in the quarter were “small areas -consulting, package implementations, decline in India business and Finacle (banking product) and a flat BPO”.
“Because it’s the first quarter and it has disproportionate effect on the overall year’s performance, it has brought down the guidance. It has not changed the fact that our strategy is working,” Sikka said. Under him, Infosys has improved growth rates and in the past few quarters has done at least as well as most of its peers.