Wednesday, January 12, 2011

Infosys Technologies Ltd. (NASDAQ: INFY): Q3 Earnings Preview 2010

Infosys Technologies Ltd. (NASDAQ: INFY), India's second-largest software company, is scheduled to release its fiscal third-quarter financial results before the market open on Thursday, January 13, 2011. Analysts, on average, expect the company to report earnings of 66 cents per share on revenue of $1.54 billion. In the year ago quarter, the company reported earnings of 59 cents per share on revenue of $1.23 billion.

Infosys Technologies Limited provides information technology (IT) and consulting services worldwide. The Company provides end-to-end business solutions.

In the preceding second quarter, the Bangalore, India-based company's net income was $374 million, or 65 cents per  American Depositary Share, compared to $317 million, or 56 cents per ADS, in the year-ago quarter. Revenue grew 29.6% to $1.48 billion from $1.15 billion.  Analysts, on average, expected the company to report earnings of 60 cents per share on revenue of $1.42 billion. A total of 27 new clients were added during the quarter, taking the number of active clients to 592. There was a net addition of 7,646 employees, taking the total number of employees to 122,468 globally.

At its last earnings call in October, the company said that it expects third-quarter earnings per ADS in the range of 66 cents to 67 cents per share.  Revenues are expected to be in the range of $1.547 million and $1.562 million, representing year-over-year growth of 25.6% to 26.8%. Analysts currently expect the company to report earnings per share of 64 cents per share on revenue of $1.47 billion. For the fiscal year ending March 31, 2011, the company currently expects earnings per ADS to be in the range of $2.54 to $2.58. Revenues are expected to be in the range of $5.95 billion and $6.00 billion, representing year-over-year growth of 24.0% to 25.0%.

It appears that the growth momentum is gradually picking up for offshore IT outsourcing, thanks to a rebound in demand for discretionary services.The Indian offshore IT services market has seen tremendous growth over the past five years, and there are reasons to believe that this growth will continue in the foreseeable future. A vast pool of talented labor, an English-proficient population and a competitive cost structure characterize this market. Additionally, the Indian offshore services market only accounts for a small percentage of worldwide IT services spending, leaving room for Infosys to grow.

The company continues to focus on large transformational engagements, especially through its consulting and enterprise solutions offerings. The clients have been impressed by its engineering services. The pricing environment has stabilized and there is increasing demand for its system integration services due to Mergers & Acquisition.

However, the economic environment, appreciating rupee, pricing pressure and decreased utilization rates could negatively impact revenues and operating results. The company's revenues are highly dependent on clients primarily located in the United States and Europe, as well as on clients concentrated in certain industries. The soft economy or factors that impact the economic health of the United States, Europe or these industries may affect its business.

In terms of stock performance, Infosys shares have gained nearly 37% over the past year.

Full Disclosure: None.
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