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Infosys: Changing revenue mix

Nov 14, 2000

On the back of weak sales forecast from computer majors Dell, IBM and Hewlett Packard (HP), Indian technology major Infosys has decided to increase its presence in Europe and Asia. Currently the company derives around 75% of its revenues from North America followed by 18% from Europe and the balance from rest of the world. The company’s first software development centre in London began operations during the quarter ended September 2000. It has also opened marketing offices in Hong Kong and Sydney. The global delivery model of Infosys leverages talent and infrastructure in different parts of the world to provide high quality and time to market solutions.

Revenue by geographical area
Countries 2QFY00 1QFY01 2QFY01
North America 78.2% 74.5% 75.0%
Europe 14.8% 17.2% 18.1%
India 1.5% 1.3% 1.1%
Rest of the world 5.5% 7.0% 5.8%
Total 100.0% 100.0% 100.0%

The company plans to reduce the US-based contribution to revenues from the current 75% to 60-65% in order to de-risk its geographic concentration. A slow down in the US economy is likely to increase the tendency of US companies to push software development to lower cost offshore suppliers.

Client concentration
Particulars 1QFY01 2QFY01
Active Clients 222 240
Added during quarter 32 27
% revenues from top-5 clients 24.7% 24.9%
% revenues from top-10 clients 39.5% 38.0%
Clients accounting for >5% of revenue 2 2

Diversifying geographic concentration of revenues by focusing more on the European market is likely to broad base the spread of its business and is aimed at reducing its risk profile. European markets still have a dearth of software professionals and hence, tend to support high billing rates.

Currently the company is accorded high valuations by the markets due to its management quality and its ability to sustain high growth rate. Management’s foresightedness of de-risking revenues from the American markets is likely to benefit the company in the long term. Till it is able to achieve that, in the short term the stock is exposed to vulnerability of both the NASDAQ and the domestic markets.

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