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Commentary: Reason for optimism

The need to outsource software development should help sustain Indian software vendors such as Infosys, despite the world's political and economic troubles.

By Sujay Chohan, Rolf Jester, John Roberts and Rita Terdiman, Gartner Analysts

The need to outsource software development should help sustain Indian software vendors such as Infosys Technologies, which posted strong earnings despite the world's political and economic troubles.

The U.S.-led attacks in Afghanistan will likely affect India's software industry, if only for a short while, but assessing the risk to vendors located in India is not simple. As the global economy slows and business travelers become reluctant to go overseas, many companies in countries such as India will likely suffer a severe drop in business.

However, even in hard times, successful companies find a way to make progress. Global troubles have not yet squelched growth for Infosys, a leading Indian software services firm. Earnings for its fiscal second quarter, ended Sept. 30, surpassed its own expectations. Infosys recorded revenue of $137.2 million, up 40.1 percent from $97.9 million in the year-earlier period. Earnings per share rose from 25 cents in the year-ago quarter to 31 cents in the just-ended quarter. Infosys restated its projected earnings for the rest of the fiscal year.

In addition, Infosys closed large deals with 11 new customers after the terrorist attacks on Sept. 11. Its brand likely helped, as strong brands tend to do in uncertain times.

Those attacks did not prevent the signing of some deals already well along in the pipeline, and other Indian vendors have also reported signing significant deals since then. Nevertheless, vendors and customers have indicated a slowing of contract closings--often due to the enterprise's disinclination to allow travel to India.

See news story:
India's IT leaders try to allay new fears
The perception of risk by Western businesses--however misplaced--will likely hurt the earnings of India's software industry (particularly companies that are less well known) through the first half of 2002 but probably not in the long term. The long-term trends driving the offshore industry remain. Enterprises in developed countries facing a skill shortage or looking for reduced costs or better quality will seek to outsource software development to companies that have both IT talent and lower costs.

(For a related commentary on a leading Indian services provider, Wipro Technologies, see Gartner.com.)

Entire contents, Copyright © 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.