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'IT sector recovery will start from 2010'

August 06, 2009 09:55 IST
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S Gopalakrishnan, CEO, InfosysInfosysTechnologies, India's second-largest software exporter which posted a 17.3 per cent rise in the first quarter net profit at Rs 1,527 crore, expects a year-on-year decline in revenue at 4.6 to 3.1 per cent as economic conditions are expected to remain flat. In an interview with Pradipta Mukherjee, CEO and MD S Gopalakrishnan says the company is focusing on other revenue-generating streams, like filing more patents for commercialisation and licensing, and non-linear initiatives. Excerpts.

What are your plans for research and development?

We are focusing on increasing our revenues from commercialisation and licensing of our patents. As part of our new engagement model, the focus has changed to commercialising the intellectual property from merely developing it.

So we are increasing our IP filings every year. We had filed 100-200 applications in India and US, of which we have got patents for close to five developments. The innovations are in the areas of software engineering, sensor networks for various industries, business processes, among others. We would invest 1 per cent of our revenues, or $45 million, in R&D annually.

The differentiation that our patents would bring in would enable us to offer more specialised products, which can be further fine-tuned to suit clients' requirements. Indirectly, using these patented developments is expected to improve employee productivity by 5 per cent annually. Licensing our patents would also bring in additional revenues.

Another focus area would be our non-linear initiatives. This currently makes up for less than 5 per cent of our revenues, but this is one thrust area now since clients' purchase behaviour, especially in emerging markets like India and China, are changing. For instance, clients are looking at services that come with variable cost, instead of a fixed cost and purpose.

How are the international markets shaping up?

We are looking at acquiring companies which are 10 per cent of our revenues - in the range of $450-500 million. The acquisition is expected to help us diversify our client base, especially at a time when growth has been flat from traditional revenue streams like the banking, financial services and insurance sector, besides retail and manufacturing. Also, we are pursuing deals worth $1 billion in this quarter and have 12-15 deals in the pipeline.

We would invest in expanding into new markets like the Middle East, South and Latin America, India and China, so that our volumes do not suffer. Also, we would look at introducing new retail solutions and IPTV offerings. We are also looking at new industries, like healthcare and energy sectors.

Currently, 97 per cent of our $4.6-billion business comes from exports and 3 per cent from India.

Are you looking at more local employment, especially in the US?

Over the long-term, we expect to locally employ 15 per cent of our workforce, up from 4 per cent right now. This is because a lot of our services are onsite and, as we expand into other geographies where English is not a widely used language, we need local employees who know the local language and requirements.

When can the IT sector turn around?

Early recovery could be visible from 2010. Currently, Infosys is focusing on remote delivery of services because the market share of this model is still very small and, therefore, can ensure more growth opportunity. Once demand picks up, we would look at infrastructure expansion.

Also, fresh recruitments would start only after demand picks up. We had made 18,000 offers in April 2008 to our campus recruits. We had asked all of them to join us and most of them have agreed. For our existing 140,000 employees, we have deferred increments and promotions for this year. Otherwise there has been no pay cut or any drastic cost-cutting initiatives.

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