Business is Good for IT Outsourcers (INFY, WIT, IBM, CSC, CTSH, ACN)

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India’s Infosys Technologies Ltd. (NASDAQ: INFY) reported second-quarter earnings today, and EPS came in more than 10% higher than in the same period a year ago. The company also lowered its full-year sales guidance in dollars from a July forecast of $7.3 billion to $7.08-$7.2 billion. In rupees, however, full-year guidance rose by about 5% due to the fact that the rupee has depreciated significantly against the dollar in the last year.

Infosys and competitor Wipro Ltd. (NYSE: WIT) are two of India’s largest business outsources. The two companies compete with IBM Corp. (NYSE: IBM), Computer Sciences Corp. (NYSE: CSC), Cognizant Technology Solutions Corp. (NASDAQ: CTSH), and Accenture plc (NYSE: ACN).

Business and government spending in the US and elsewhere is expected to grow as companies invest in new equipment and outsourcing for their IT needs. Even Europe is expected to grow if very slowly.

Those estimates, though, may seem to fly in the face of reality. But Infosys, Wipro, Cognizant, and India’s largest outsourcer, privately-held Tata Consultancy Services, could reduce a company’s IT costs significantly by replacing highly paid fired workers with lower paid, outsourced workers.

Goldman Sachs Group Inc. (NYSE: GS), an Infosys client, plans to fire more than thousand employees to meet its cost reduction goals of $1.45 billion. That’s bad news for the terminated employees, but might offer some good news for Infosys — and Goldman for that matter.

Of course, the big question for the India-based outsourcers is how much of growth they can expect to see between now and the end of the year. Infosys got 6.2% quarterly growth in the Americas during the quarter and expects growth to continue. The other issue they face is whether or not they can control costs. Infosys expects wages to eat away about 1% of the company’s operating margin this year.

Growth that depends on a depreciating currency in a weak economic climate is tenuous at best. There are a lot of things that can go wrong and put a serious crimp in growth forecasts.

But all is well today. Just past noon today, Infosys shares are up more than 8%, at $56.88, in a 52-week range of $46.12-$77.92. Wipro shares are up about 3.5%, at $9.77, in a 52-week range of $8.63-$16.81. Cognizant shares are up nearly 6.5%, at $71.82, in a 52-week range of $53.54-$83.48.

Paul Ausick