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Infosys lowers forecast due to SARS

The Indian IT services firm gives lower-than-expected earnings guidance for the year ended March 2004, and is the latest to say a disease outbreak is hurting business.

India-based Infosys Technologies on Thursday gave a lower-than-expected earnings forecast and became the latest technology company to blame the SARS virus for business troubles.

Shares of the closed 32 percent lower after it predicted per share earnings for the year ended March 2004 of $1.70 to $1.73. Two brokerages surveyed by First Call on average had been expecting earnings per share of $1.91.

Infosys, which has been growing rapidly as companies seek lower-cost tech help overseas, posted March 2003 quarter earnings per share of 40 cents, up 25 percent from the previous year's quarter.

But the company indicated that business conditions are cloudier than analysts imagined. Uncertainties related to the U.S. economy are affecting the growth of the Indian software industry, CEO Nandan Nilekani said in a statement. The war in Iraq and the mysterious, deadly SARS virus also have hurt business, suggested Basab Pradhan, the company's head of worldwide sales. "During the quarter, there were some cancellations of visits by clients and prospects due to the Iraq war and the SARS scare," he said.

SARS, or severe acute respiratory syndrome, is a pneumonialike illness that appears to have emerged in China in November. As of Thursday, there were 2,781 cases worldwide reported to the World Health Organization, with 111 deaths. Nearly 2,300 of the cases were located in Hong Kong or the rest of China, and there were no reported cases in India.

The disease has disrupted the technology industry in numerous ways. Thanks to concerns about the virus, the Semiconductor Equipment and Materials International trade group on Wednesday postponed a trade show slated for early May in Singapore. The show has been rescheduled to mid-August.

The illness also in Asia and postpone CEO Craig Barrett's trip to the region. Computer maker Sun Microsystems canceled the Shanghai portion of a massive product launch it had scheduled for April 7 and postponed a conference that had been expected to draw 4,000 attendees. Chipmaker ATI Technologies postponed an Asian tour to show off its new line of products. SARS led Hewlett-Packard to close a Hong Kong office temporarily and resulted in .

Monday, First Albany analyst Auguste Richard chopped his 2003 growth estimate for the semiconductor industry dramatically as a result of the SARS virus. Richard changed his forecast from 8 percent growth to a contraction of 5 percent.

"We believe that the impact of SARS on the semiconductor economy is going to be larger than that of the war in Iraq. We are already seeing the disease impact the operations of companies we follow," Richard wrote. "In the near term, disruptions to the supply chain are most likely, and this could drive some hoarding of components in the near term. This is because the center of the epidemic and manufacturing of electronics and semiconductor overlap considerably."

Richard's comments echo those of market research firm Aberdeen Group. In a report issued March 31, the firm suggested that SARS could break critical supply lines. "If China were hypothetically quarantined, it would take literally months of 24/7 work by manufacturing planners and logistics mavens to create qualified alternate production sources," the firm wrote. "That would mean nuclear winter to the semiconductor and electronics industry."

Infosys' mention of the SARS virus in its earnings press release comes on the heels of a similar lament by semiconductor maker Microchip Technology. Monday, Microchip trimmed its sales and earnings guidance for the March quarter, and pinned part of the blame on the virus. The spread throughout Asia of SARS "is inhibiting business travel and, in some cases, purchasing decisions, as many customers are temporarily closing plants to avoid the spread of the disease," said CEO Steve Sanghi.