Infosys: Outsourcing King!
1-21-07: Infosys Technologies Ltd. (INFY), the premiere Indian technology consulting firm continues to report very strong numbers. As far as we are concerned, INFY has proven it is for real in a market that appears to be limitless for now. The outsourcing business has been great for INFY, particularly in the last 5 years as Western companies accelerated their outsourcing efforts. As outsourcing of Information Technology (IT) resulted in significant savings to their client’s bottom line, companies of all size have now jumped on the outsourcing bandwagon. The net affect is strong growth for INFY and other “consulting” companies.
Whether it is systems design, programming complex codes to handling technical support, INFY has been on the forefront of the information technology globalization. Outsourcing is so common these days that it is almost uncharacteristic of large enterprises to not have some tie to India. A few years ago when outsourcing was getting a lot of attention from the media and American IT workers were being displaced, one of the laughable statements from the public relations people was that the outsourced jobs only involves positions that required less skills such as such as technical support or other “back office” tasks. Nothing can be further from the truth. The truth of the matter is companies like INFY is far more capable than most American companies and can do the work for much less.
We expect the outsourcing trend to continue; someday virtually all of the software business will be in India. Similar to how the manufacturing jobs moved out of the country in the 1980s to Asia and Central & South America, the same is happening with IT jobs. The inexpensive labor is just too much for companies to ignore. Moreover, it is not just the lower labor cost; India produces more Engineers than any other country in the world. In contrast, the number of engineering students has been in the decline in the U.S. for years. Math does not appear to be the forte of American college students. As the number of IT jobs decline in the U.S., the labor pool is also expected to drop; making the situation worse.
As investors, we can capitalize on this trend by buying a piece of companies like INFY. Contrary to some point of view, it is not too late to join this party. In fact, the party is about to get interesting. We prefer INFY over Saytam (SAY) or Wi-Pro (WIT) as we believed INFY is in the best position given the company’s breath, size and experience. Looking over INFY’s five year stock chart, this company has split twice and the trend is a 45 degree angle. While we would never call ourselves a technical analysis expert, it’s obvious if globalization continues to proceed at this rate; INFY should be worth about five-fold in the next 5 years.
