News Column

New Infosys CEO sees a chance to boost margins

June 13, 2014

Bloomberg News



Bangalore:Infosys'Vishal Sikka says he sees the chance to transform the world with software. First, he may need to transform the Indian outsourcing company that just hired him to be its chief executive officer.



Software, digital technology and computing are reshaping the world, Sikka, 47, said on Thursday at Infosys's headquarters in Bengaluru, formerly known as Bangalore.



The Indian-born California resident said he sees "a tremendous opportunity to help shape and help accelerate the transformation. Every industry, every walk of life and every company is going through this transformation," he said.



Sikka, who spent 12 years at German business software supplier SAP, may be just the accelerant Infosys needs as it looks to reverse narrowing profit margins.



The Indian software services provider wants to maintain its importance in a world where companies are moving computing tasks to 'cloud' programmes from Microsoft, Amazon.com and Salesforce.com, rather than writing the code themselves.



"The move signifies Infosys's commitment to something new and a heavier focus" on higher-margin, intellectual property-based products and services, Constellation Research chief executive officer Ray Wang said.



"It also shows that the firm is not afraid to try something different."



Good reputation

Sikka is getting his chance after an abrupt departure from SAP last month. The new chief executive officer will face the task of winning outsourcing contracts in a rapidly changing environment where companies want mobile applications to interact with consumers and rent shared computing services rather than maintain their own servers.



At Infosys, SAP's former technology head needs to reverse four straight years of narrowing profit margins and spur sales growth that trails its larger competitor Tata Consultancy Services. Sikka, who will assume office for a five-year term on August 1, faces the added challenge of taking charge at a time when at least 11 senior executives have left in the past year.



"Sikka has a good reputation and track record at SAP, and we will have to see what steps he takes to turnaround the business," said Juergen Maier, a fund manager in Vienna at Raiffeisen Capital Management, which oversees about $1.1 billion in emerging-market assets including Infosys shares.



"It looks like a good first step," Maier said, adding it would take a few quarters to turn things around.



Infosys fell 0.4 per cent to Rs3,163 in Mumbai trading, extending the stock's decline this year to 9.3 per cent. The company is the worst performer in the period on the benchmark S&P BSE Sensex Index, which has climbed 21 per cent. Tata Consultancy has added 1.3 per cent and smaller competitor HCL Technologies has gained 12 per cent in 2014.



Profit margin

The company's gross profit margin narrowed to 35.8 per cent in the fiscal year that ended this March from 45.8 per cent in the 12 months ended in March 2009, according to data. In contrast, the margin at software maker SAP widened to 70.3 per cent in 2013, from 65.2 per cent in 2008.At Microsoft, Oracle and SAP, gross margins are at least double Infosys'.



"They're currently underearning what they've earned historically," said Andrew Zamfotis, an analyst at Eva Dimensions in New York who has an "overweight" rating on Infosys.  At SAP, Sikka rose to oversee development of new products, including a database called Hana.




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Source: Times of Oman


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