This (slowdown) is perhaps one of the worst times'

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This (slowdown) is perhaps one of the worst times'

April 14, 2009 S (Kris) Gopalakrishnan, MD and CEO of the Bangalore-headquartered company,
talks of the road ahead with Bibhu Ranjan Mishra and Ravi Menon.

http://specials.rediff.com/money/2009/apr/16sld1-infosys-ceo-on-slowdown-and-the-way-ahead.htm

Infosys Technologies admits it is being affected by the global
economic recession. 

For 2009-10, the company, for the first time, said it expected a drop in
earnings per share. And, for the first time, it is giving no promise
('guidance') on hiring. 

Your Q1 guidance paints a gloomy picture. 

The amount of uncertainty is unprecedented. This is perhaps one of the worst
times we have seen in our lifetime. 

However, under the given conditions, we performed quite well last financial
year. 

Are there any signs of recovery? 

The data are unclear. Our clients still believe there will be decline in
spending and in IT budgets. 

To say the recovery has started, I need to get the signals. Today, the
signals are only coming from analysts and economists, not from our clients. 

Have your clients finalised their budgets? 

As of four weeks ago, around 61 per cent of our clients had. This number
must have gone up to 70 per cent. 

Many say their budgets are going to be lower this year. Some say more than
10 per cent lower. 

Does it mean the worst is yet to come? 

It is uncertain at this point. What we are seeing now is a challenging first
quarter. Beyond that may be some recovery. Do lower (client) budgets imply
higher pricing pressure? 

Not necessarily. It means the number of projects that take off will be
fewer. 

Pricing is only one of the many outcomes -- you might have seen the fixed
price projects going up last quarter. 

That (fixed pricing) is the way before us to provide them some
flexibility in terms of lower costs while sustaining our margins. 

Is the currency volatility a big challenge for you? 

It always is. 

We can manage a steady change in currency. But we have seen an unprecedented
volatility in a very short period. 

For the company, we need to get the growth going. With growth, all problems
will be solved. 

Have there been any cancellation or postponement of deals? 

No. But the velocity of the business has come down. 

We are not seeing any cancellation of deals. 

When a project ends, typically a new project starts. But now, the re-start
is getting delayed or, sometimes, not happening at all. 

Your repeat business came down last quarter. Why? 

Because we compute it on an annual basis. 

So, typically, the first quarter will be the highest and the fourth quarter
will be the lowest. 

But repeat business remains the same and the number of client additions is
still very strong. 

How does business from new clients look like? 

We added 37 new clients in the last quarter. 

Traditionally, when we add clients, we see a certain rate of growth. Now,
the rate of growth is much, much lower. Decision-making is delayed. 

We have a good pipeline of deals but those are taking longer to close.
Typically, the deals which we used to close in six months are now taking 9-10
months. 

With so many non-performers, is your training not delivering the expected
results? 

In any competitive environment, there will be some who excel and some who do
not. There will always be winners and losers. 

It is not a reflection of how they (employees who have been asked to
leave on the basis of their performance) will do in another company or in
future. 

In a competitive environment, we have to look at relative performance. In a
relative evaluation, some people fall at the bottom. 

Typically, we allow such people to improve. But because of challenges and
pressure in cutting costs in this environment, we cannot afford to let them
remain. 

We have limited the list of non-performers at 5 per cent. There is no
additional focus on increasing this number now. 

But there is an additional focus on making sure that people take this very
seriously and improve as quickly as possible so as to not fall in this category.

What about those who perform well? 

We have a bonus plan and a variable compensation plan, which allow us to
reward the good performers. 

Even in this environment, we are giving more than 100 per cent variable
compensation to certain people. 

But you cut variable pay last year. 

The variable pay allocation is 80-85 per cent even now. We have not brought
this down. 

Edited by valueman - 16/Apr/2009 at 6:27pm