Infosys Cuts Growth Forecast as AI Squeezes Deal Prices
AI revenue at the Indian services firm rose 29% in the quarter, but customers now expect lower prices on multi-year contracts.
Infosys has lowered its full-year revenue growth forecast to 1.0% to 2.0%. In the first quarter it had predicted 1.5% to 3.0%. The Indian tech services group reported second-quarter revenue growth of 1.5% year on year.
Quarter on quarter, AI revenue rose 29%. It now accounts for 10.5% of incoming revenue.
"Growth was below our expectations. Volume was softer, and price increases were lower than anticipated amid high competitive intensity," chief financial officer Jayesh Sanghrajka told investors.
Cheaper AI-built work
One reason for the weaker pricing is that clients expect Infosys to charge less when it uses AI. Those savings are now "baked in" to its multi-year deals, according to the company.
CEO Salil Parekh said some peers are putting "more intense effort into the pricing pressure". He added that it is also visible "across the board" because of the environment and the discussion on AI productivity. Large programs, he said, are discussed with clients on a three- or five-year outlook.
Infosys will not cut prices to win deals and aims to hold margins at around 21%, Sanghrajka said. He cited a large deal the company walked away from because it did not meet its return expectations.
Outlook
To protect margins, Infosys is running an efficiency programme called "Project Maximus". It is also using AI-powered tools to win more sales.
Sanghrajka said retail and high-tech clients have slowed their services spending. He also noted that the second half of the financial year is usually the company's slow period.
Infosys shares did not dive on the news, but they are already down more than 25% over the past twelve months. Bloomberg reports that analysts have downgraded the stock. The company pointed to $8.8 billion of new deals won in the first half of the financial year, 68% of them from net new customers.
Source: The Register