Infy feels the heat of recession; net profit dips

Indian IT juggernaut Infosys reported Q1 2011 revenues of Rs.6,198 crores, which was in line with its guidance of 5,919 to 5,963 crores, growth of 4.3% and 13.3% QoQ and YoY respectively.

Net profit was Rs. 1,488 crores, which declined 7% and 2.4% QoQ and YoY respectively. However, this includes the investment in OnMobile Systems of Rs. 48 crores.

The repercussions of the dip in net profit were felt in its stock price in BSE SENSEX, which was down 3.44%.

To put things in perspective, Kris Gopalakrishnan, Infy’s CEO said “There are distant clouds on the horizon, we don’t know if they are rain clouds or cyclone,”

The primary reason for the dip in net profit can be attributed to currency fluctuations and the business outlook in Europe because of recession, which is lagging behind the US in terms of recovery.

For the quarter ended June 30, 2010, Infosys derived 67.3% of its revenues from US; 20.3%, which is less than 22.5% of Mar 31, 2010, from Europe; 1.7% from India, and 10.7% from the rest of the world. Since more than two-thirds of company’s revenues comes from US and Europe, where its Fortune clients are based are yet to come out of the woods and hence the dip in net profit is understandable.

Despite announcing double-digit salary hike for Infoscions in the last quarter, attrition for the quarter increased 2.4% from previous quarter, which shows that poaching is again rampant among the peers. This could add pressure on its margins for which the company has to find a way out to reduce attrition.

On the flip slide, the company, which is known for its ‘project less and achieve more’ strategy, has raised its full-year revenue projections. This shows that the company is gung-ho about the full-year economic outlook across all geographies.

Let’s wait and watch whether the clouds are rain clouds or cyclone.

Need of the Hour: Reverse Innovation

Reverse Innovation, in the layman's terms, means, an innovation carried first in the emerging markets and then introduce them to the global markets, which is quite contrary to what MNCs have been following over the decades.

Traditionally, for decades, MNCs used to develop and manufacture products in the US and tweak it to cater to the needs of emerging markets. Post-recession, the global scenario is changing where developed markets are in doldrums and emerging markets largely remained unscathed, GE changed itself in a disruptive way, and termed it as "Reverse Innovation".

In 2008, GE Healthcare, one of the divisions of GE, introduced MAC 400, a portable ECG machine and LOGIQ 100, a portable and compact ultrasound imaging system. These machines cost less than a fifth of their conventional counterparts.

One may wonder how and why. This is because of GE's "In India for India" strategy. Both of these products are conceptualized and built from scratch at John F. Welsh Technology Center in Bangalore and manufactured in India. These products, because of the quality and affordability, which the emerging markets need, are now being sold globally in developed markets, which is reaping great dividends for GE.

GE calls this process as "Reverse Innovation" since it is exactly contrary to the glocalization approach that MNCs have used to follow for decades. MNCs using glocalization invent and develop new products at their home turf, usually US and Europe, and then distribute them to rest of the world at higher costs where only few can afford. This worked fine till few years back where majority of their products were sold in developed countries, which keep their margins intact and rest of the world markets contributing minuscule to their top line and bottom line.

Fast-forward, thanks to recession and globalization, the emerging markets, especially, BRIC countries are growing at double digits vis-à-vis developed markets, where growth has plateaued. MNCs like GE today needs breakthrough innovation badly since their survival in the forthcoming decades depend on the emerging markets. For this to happen, MNCs have to change their mindset from centrally managed processes to decentralize it depending upon the markets and the demographics they serve. This requires a paradigm shift in the way the top brass thinks about the way they do business.

As Vijay Govindarajan, Professor of International Business at the Tuck School of Business at Dartmouth College, and consultant to GE, says, "The game has just started and the full impact of this is going to be felt over the next couple of decades."

Apple Likely To Find A Solution For iPhone 4 Issues

Since the new version of Apple’s iPhone, the iPhone 4 was launched in early June, there had been complaints pouring in about the bad antenna reception. The company had already sold around 2 million phones since its launch.

Initially Apple had denied of any such issues. But since the controversies persisted for long enough, Apple came back and informed that it was a software glitch. It had even advised people to cover the phone with a case or hold it slightly differently without the hands being in direct contact with the antenna, as the reception becomes weaker if the lower left corner is covered by the hands.

But a report from a product-quality testing company, Consumer Reports, challenged Apple’s statement saying that it was not a software issue that led to these problems, but it was a hardware flaw, that the design had not been going well with the functions of the phone. Apple’s share fell drastically since the iPhone 4 went on sale.

Reports from sources confirm that Apple and its CEO had been warned about these particular signal issues as early as a year ago. But then Apple hadn’t worried much about it. It simply went with the design it liked so much. Reliable sources say that Apple had given only very less time to carriers for testing of the iPhone 4 product performance. And moreover, Apple’s telecom partner AT&T faced criticisms about the dropped calls wherever the network coverage was weak.

Amid all these criticism, Senator Charles Schumer of New York, on Thursday urged Steve Jobs to further investigate and make amends over these issues and provide services free of cost to the consumers affected.

There had been reports saying that Apple would recall the phones. But Apple had denied of any such plans.

Now Apple’s reputation as a reliable consumer electronics industry is at risk. So at this time, if it recalls the phones, then it would do a greater damage to Apple. Instead of recalling, Apple could come up with a solution or provide some add-on services to the affected iPhone 4 users.

As far as the consumers are concerned, they are hoping for a better solution to these issues at the news conference to be held by Apple today, July 15 in Cupertino, California. The company had promised to discuss only about the iPhone 4 glitches in this news conference.