Infosys Lowers Profit Forecast, Abandons Bid to Acquire Axon

Posted on Posted in Software

By Harichandan Arakali

Oct. 10 (Bloomberg) — Infosys Technologies Ltd., India’s second-largest software-services provider, cut its full-year profit forecast because of a deteriorating economic outlook and abandoned its bid to acquire Axon Group Plc.

Earnings in the year ending March 31 will probably be $2.24 a share, missing the low end of the company’s July forecast of $2.32, Bangalore-based Infosys said in an e-mailed statement today. Net income in the quarter ended Sept. 30 rose 30 percent to 14.3 billion rupees ($292 million).

The deteriorating profit outlook prompted Infosys to walk away from plans to acquire U.K.-based Axon after its 407.1 million pound ($690 million) bid was trumped by HCL Technologies Ltd. Infosys and larger Indian rival Tata Consultancy Services Ltd. are under mounting pressure to reduce prices as the credit crisis spreads beyond financial firms and forces more customers to put orders on hold.

“Margins will get squeezed,” A. K. Sridhar, who heads the Singapore unit of UTI Asset Management Co., India’s oldest money manager, said in an interview yesterday. “There will be more people willing to work at lower salaries so for Indian companies, there could be pressure for them to reduce rates.”

Infosys shares fell 5.1 percent to 1,190 rupees, headed for their lowest close since September 2005, as of 10:15 a.m. local trading.

The revision in the forecast reflects “the current economic situation and the drastic depreciation of major global currencies against the U.S. dollar,” Chief Executive Officer S. Gopalakrishnan said in an e-mailed statement.

Scrapping Axon Bid

Credit Suisse Group analysts wrote in a report on Oct. 7 that Infosys may scrap its plans to buy Axon after HCL offered 650 pence a share, or 8.3 percent higher than Infosys’s bid.

“After careful consideration, the Board of Infosys has concluded that it will not increase the price of its original offer,” Infosys said. “The company is confident that its decision will have no material impact on its strategic plans.”

Axon, which specializes in advising clients on how to run business-management software, may be less appealing after SAP AG, the biggest maker of such programs, said this month it saw a “very sudden and unexpected drop” in business activity, the Credit Suisse analysts wrote.

Goldman Sachs Group Inc. this week cut its investment ratings on Tata Consultancy, Satyam Computer Services Ltd. and Wipro as its analysts turned “cautious” on the Indian technology-services industry from “neutral,” citing reduced earnings expectations because the financial turmoil.

Order Delays

Gopalakrishnan said in a Sept. 10 interview he saw delays in orders and customers seeking to renegotiate prices. Since then, Lehman Brothers Holdings Inc. filed for bankruptcy, escalating a financial crisis that’s forced central banks worldwide to cut interest rates and wiped out more than $5 trillion of global stock markets in the past month.

The International Monetary Fund said this week the global economy is headed for a recession next year and that losses related to U.S. debt may bloat to $1.4 trillion.

Infosys maintains computer networks and runs call centers providing back-office services to clients including BT Group Plc and Citigroup Inc. Tata Consultancy and Wipro Ltd., the third- largest software services provider, will report their results on October 22.

To contact the reporters on this story: Harichandan Arakali in Bangalore at harakali@bloomberg.net.

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