Pricing pressure to continue, says Infosys

Makes investment in TidalScale, a Silicon Valley firm that helps clients draw insights from big data

Infosys chief executive Vishal Sikka has said the company continues to see pricing pressure from customers as they see their businesses undergo structural changes and emergence of digital technologies.

“Downward pricing pressure that you see across the industry is a result of structural change. If you look at the fixed price there is no doubt that across the industry there is a very significant shift. The expectation that customers have is prices to come down because they are under pressure,” Sikka said at the Wells Fargo analysts’ conference in New York on Thursday.

The industry has seen a structural change in IT services with automation, he added.

Indian IT industry is facing its biggest crisis in a decade as the demand for traditional technology services has gone down significantly. The sector is expected to grow in single digit this year even as Indian firms struggle to offset decline in traditional services with new opportunities in Cloud and Digital.

Infosys and Cognizant both have cut their revenue forecast twice this year. Accenture cut its full-year outlook, citing pricing pressure. Wipro forecast a flat Q3. The Indian IT industry lobby National Association of Software and Services Companies has also sounded concerns and might further reduce the growth forecast.
 

Experts say a majority of technology spending by companies would be driven by digital technologies like cloud-based applications, analytics, mobile systems, social media and cyber security. Consistent pressure on pricing from businesses and changing demand have forced Infosys and its peers to bring in automation and focus on offering digital services.

Among many other measures to remain profitable, Sikka said the company would continue to look at people who have the ability to innovate and execute new things.

“Infosys is a company that is going through such a transformation from a cost-based model to innovation-based model. It is going to continue to challenge itself and find people who have both the ability to challenge and execute,” he said.

On Friday, Infosys said it has invested in TidalScale, a Software-Defined Servers provider. TidalScale, compatible with all applications and operating systems, helps organizations in drawing insights from big data faster.

Sikka pointed out that the cash-cow business is under margin pressure and transformation is much more difficult. The company is focusing on building repeatable software. “Software plus people model is the only way to offset the downward spiral. We have to build software that is also for other users and not only to improve our productivity.”

Going forward, the company would focus on automation across all its verticals to maintain a sustainable margin. “Things like productivity (improvement) and utilisation are short-term levers to improve margin. But sustainable levers for margin can be created through automation across the pyramid,” M D Ranganath, chief financial officer, Infosys, said.