Infosys may trim forecast again as US clients cut back

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Infosys, India's No. 2 software services provider, may cut its revenue forecast next month as US business clients defer spending and balk at signing big deals. (Reuters) Infosys, India's No. 2 software services provider, may cut its revenue forecast next month as US business clients defer spending and balk at signing big deals. (Reuters)
SummaryInfosys, India's No. 2 software services provider, may cut its revenue forecast next month as US business clients defer spending and balk at signing big deals.

Infosys, India's No. 2 software services provider, may cut its revenue forecast next month as US business clients defer spending and balk at signing big deals.

The outsourcing icon, which has missed its own revenue guidance in three of the past four quarters, has struggled as its big customers cut costs, and analysts have criticised management for sticking with a rigid pricing policy when competitors have offered more flexible plans.

Infosys executives have sounded downbeat in recent interviews and in meetings with analysts, citing client troubles ranging from Hurricane Sandy-related shutdowns to worries about the US "fiscal cliff" of tax hikes and spending cuts.

"From what they've been saying in various conversations, it's not unlikely that they will cut guidance," said Ambit Capital analyst Ankur Rudra, who has maintained a "sell" rating on Infosys shares since January 2011.

An Infosys spokeswoman declined to comment, noting that the company is in a mandatory quiet period ahead of its earnings results due in January.

With about 60 percent of its business in the United States, Infosys is particularly vulnerable to swings in US Corporate sentiment and has been hit hard by spending deferrals.

Diviya Nagarajan, an analyst at UBS, wrote in a Dec. 6 note to clients that the company's growth forecast for the fiscal year ending in March could be under threat because of cutbacks on large projects and delays in closing deals.

UBS organised an investor meeting on Dec. 6, featuring Infosys Chief Executive Officer S.D. Shibulal.

Longer-than-expected client shutdowns due to Hurricane Sandy, especially in the manufacturing sector, were also hurting Infosys, wrote Nagarajan in her report.

Infosys's guidance of 5 percent dollar revenue growth for the current fiscal year compares with an estimate of 11 percent for the sector by the National Association of Software and Services Companies, or NASSCOM.

Infosys, for years an investor favourite for exceeding its targets, stopped providing quarterly guidance in July after a string of disappointing results. It now provides only an annual revenue forecast.

It is expected to update its outlook for the fiscal year ending in March when it reports quarterly results on Jan. 11.

A forecast cut would be the second this fiscal year. In July, Infosys halved its dollar revenue growth estimate from as much as 10 percent - forecast in April - to 5 percent.

LEANING OVER THE CLIFF

Long the sector bellwether, Infosys is in the midst of a strategy shift that it calls "Infosys 3.0" as it tries to diversify

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