New Infosys CEO Salil Parekh sees significant growth opportunities around emerging digital services for the IT outsourcing powerhouse, even as its industry faces competitive challenges at home and abroad.
Parekh, who took over as chief executive of the Bangalore, India-based company earlier this month, pointed to data analytics, IoT, cloud, Software-as-a-Service, digital customer experience, security, artificial intelligence and machine learning as areas that could position Infosys for success down the road.
"These are massive growth opportunities in the sector," he told Wall Street analysts Friday during the company's third fiscal quarter earnings call. Parekh added that outsourcing companies need to change how they look at client interaction as the space shifts toward a more "business-driven agenda."
When it comes to Parekh's near-term plans and priorities at Infosys, however, the he didn't disclose many specifics. He said he'll take the next three months to look at a "strategic refresh" by evaluating the solution provider's market opportunities, client relationships, personnel and service offerings while developing a clearer view of the company.
That includes the company's approach to mergers and acquisitions.
"Given the environment and that we have a very strong balance sheet, we will look at M&A as a very strategic opportunity, but no decisions have been made," Parekh said. "We're starting to evaluate that carefully to prioritize that need."
A 25-year veteran of Capgemini, No. 6 on the 2017 CRN Solution Provider 500, Parekh is just the second outsider to hold the top leadership position at Infosys.
Parekh's arrival follows a rocky year for the outsourcing juggernaut – one which featured a public governance clash between its co-founder and board of directors, which resulted in the sudden resignation of former CEO Vishal Sikka in August. Sikka wrote in a resignation letter to his employees that "continuous … distractions and negativity" had created an untenable work environment.
Some of those criticisms were attributed to company co-founder and former chairman NR Narayana Murthy, who claimed in recent emails that Infosys' independent directors felt that Sikka was more CTO material than CEO material.
Later that August, Infosys co-founder and former CEO Nandan Nilekani was named as chairman of the board, which caused the resignations of previous board chairman R Seshasayee, Sikka, and two other directors from the board.
Boz Hristov, senior analyst covering professional services at TBR, wrote Friday that differentiation will be a key challenge for Infosys, which he argues has been hampered by a "profit-first culture" with Murthy exerting significant influence at the company.
"Parekh must be really good on playing the company politics, because as we recently saw NRN Murthy is still the “real” CEO behind the scenes," Hristov wrote.
In April of last year, Hristov told CRN that Infosys could be an acquisition target among independent software vendors due to its buildup of software-centric capabilities and sales execution challenges.
Another obstacle for Infosys and other Indian IT services companies is the U.S. government's plan to revamp the H-1B skilled worker visa program. President Donald Trump signed an executive order last year aimed at prioritizing high-skill, high-wage workers, effectively making it more difficult for IT outsourcing firms to replace American workers.
Infosy said it remains committed to recruiting 10,000 workers over the next two years, noting that it has made "good progress" in the two quarters since that announcement was made.
Among its business segments, Infosys saw revenue decline slightly around one of its largest industries served – banking, financial services and insurance – with a year-over-year decrease of roughly 0.3 percent. Company leaders asserted that insurance growth has been "very strong," while banking was more of a mixed story with some institutions still looking at cost cuts.
However, "the overall sector sentiment is positive," Infosys said. "We see spend as being stable for the sector."
Infosys reported revenue of $2.76 billion for the third fiscal quarter ended Dec. 31, 2017, up 8 percent from last year's third-quarter mark of $2.55 billion. That beat Seeking Alpha's projections by $10 million.
Net income for the quarter was $796 million, or diluted earnings of 35 cents per share, up 45.4 percent compared with the year-ago quarter. The performance fell short of Seeking Alpha's projections by 1 cent.
Over the first nine months of its current fiscal year, Infosys has reported $8.13 billion in sales, marking 6.5 percent growth year-over-year. It affirmed full-year revenue guidance, with projected constant currency growth between 5.5 percent and 6.5 percent.
The financial results were aided by a pricing agreement recently reached with the U.S. Internal Revenue Service, which lowers the company's effective tax rate by roughly 100 basis points. Retroactive tax savings of about $223 million will be paid out over the coming quarters. The deal boosted Infosys' earnings per share by 10 cents per share for the December quarter.
Infosys stock was trading at $16.83 per share at time of writing, down 43 cents (2.5%).