'Edge' works underway at Infosys

Infosys, the country’s second largest information technology (IT) services company, has started work on the long-speculated move to demerge its products and platforms business into a separate entity.

“There has not been any official announcement but since past few weeks, some people from the products and platforms team are moved to a new group called Edge Works,” a person close to the development said.

“A lot of reallocation of resources is happening; mostly, the people are being moved are the product developers.”

The decision has been taken because Executive Chairman N R Narayana Murthy is focusing on bringing Infosys back to basics. “He believes Infosys is a services company, so it should focus on just that,”  a source at the company said.

Infosys declined to comment for this story in reply to an email questionnaire. "We will be unable to offer comments as we are in our silent period (meaning, just prior to the publication of its quartelry results)," the company replied.

Products and platforms account for 5.5 per cent of Infosys’ overall revenue. Speculation about a demerger of the products business has been doing the rounds for a year.

At the time it announced its “3.0 strategy” three years earlier, the company had said it aimed to raise contribution from this business to 33 per cent of the total. However, three years later, things have not changed much.

Some sources also said Infosys is likely to retain its core banking product, Finacle, its most successful till date. Finacle clocks revenues of about $300 million annually.

Infosys offers several products under its ‘Edge’ portfolio, including AssistEdge, BigDataEdge, BrandEdge, CommerceEdge, Digitizedge, ProcureEdge, SmartGridEdge, SocialEdge,  TalentEdge, TradeEdge and WalletEdge.

Some analysts believe that the Bangalore-based company will book revenues from services provided to support these products under its IT services portfolio(which will remain under the main company). This would mean that the newly formed products subsidiary may not have a topline to talk about in its initial days.

“The main work starts after you have sold a product to the client,” an analyst with a US-based brokerage said. “So if they retain the product-related services under the IT services portfolio, there will hardly be any revenue for the new subsidiary. Although, where they book revenues won’t make much difference since investors look at the consolidated books.”

Another analyst said that the demerger of products business will help the company ease speculation over its growth.

“Infosys had shot itself in the foot by saying that it wants to increase revenue from products to 33%, which is not happening. Hence moving the business into a separate entity will shift the attention of observers. Thus, the new arm can operate like Infosys BPO or Infosys Lodestone, without much being talked or written about it,” a senior analyst with a domestic brokerage said requesting anonymity.