Let’s deal with the Axon bit first. Yes, I am a little surprised they didn’t go one more round (see Axon switches horses but the race is not over), if only to force HCL to raise its bid (which I think it would). But Infosys management always keep several eyes on investors, and what investors hate is uncertainty. Now Infosys can move on and concentrate on running the business, leaving HCL to rise to the challenge of integrating a major acquisition in dreadful market conditions. Perhaps the stock market agrees, as Infosys' stock is 'only' down 2-3% in Mumbai (9:20am) whereas HCL is down nearly 9%.
Now, what about the numbers (see here)? Being probably the only industry analyst that has full financial models of the top Indian SIs (my four years in equity research weren’t wasted after all!) I can tell you that the implications of Infosys’ lower FY outlook (their fiscal year ends March) is that they now expect revenues to decline in each of the next two quarters, with the biggest hit (1%-2%) this quarter, the most critical in many suppliers’ calendar. This should be as clear an indication as any that there will be some disappointing results ahead for almost all the software and IT services sector. If the offshore players think there’s a problem this quarter, believe me there’s a problem.
The rest of the Indian majors report over the next couple of weeks, with Satyam next Friday. I spent all yesterday (and much of the evening!) with Satyam’s top global and UK/European management and some of their customers, and will write much more on this later. Suffice it to say for now, I did not get any sense of panic; more stoic realism in the face of great uncertainty. Satyam does over £100m of business annually here in the UK (vs Infosys’ £450-500m) so it’s still in the lower rankings. But judging from the comments from the CIOs who represented its customers, there is clearly much more opportunity for Satyam to grow in the UK. But as I say, more on this later. I will also give some deeper insight into Infosys’ numbers and try to extrapolate what these might mean for the wider market after I tune in to today’s concalls.