In responding to reporters' and analysts' questions stemming from Infosys' quarterly earnings report on Tuesday, company executives were compelled to explain why its success in winning new clients during the quarter ending June 30 was at a four-year low. They also struggled to explain why a delay in decision-making among its clients had become apparent during the quarter. It all begged a very uncomfortable question: To what extent are the visa fraud lawsuit and the U.S. government's criminal investigation of Infosys causing prospective and existing clients to think twice about working with the company?
As I reported in my post, "Infosys CEO Fields Tough Questions About Visa Fraud Case," CEO Kris Gopalakrishnan told journalists in response to a question about visa abuse that from a client perspective, "if there are any questions placed, we are answering those questions to their satisfaction."
I don't know. I would imagine there are some clients that have had their questions answered to their satisfaction, but it seems implausible that the visa fraud mess isn't a serious concern among many companies that are betting their IT infrastructures on Infosys, or are considering doing so. It seems only natural that allegations of visa and tax fraud by a whistleblower with a stellar performance record at Infosys, and a U.S. government criminal investigation of the company, would create some real angst among companies in the United States, where Infosys gets about two-thirds of its revenue. And it seems equally natural that a company of Infosys' size and stature would somehow acknowledge that. Instead, it appears to have retreated and hunkered down in denial mode.
In an interview with Business Standard, Gopalakrishnan was asked why the number of new clients was so low during the quarter. This was his response:
There are some deals which are being closed in the first week of next month. Sometimes, a decision is made at the end of a month, but may get postponed to the next month to close the deal. These are just quarterly aberrations. Otherwise, there is nothing to read between the lines.
Well, come on, Kris. Isn't that the case every quarter? It doesn't explain why new deals were at a four-year low this quarter, does it? You're kind of forcing us to read between the lines, you know?
The delays in client decision-making, meanwhile, were a hot topic in the evening quarterly earnings call, during which Gopalakrishnan acknowledged that it was only in the most recent quarter that the delays became an issue. This is how he explained them:
[G]iven that there is uncertainty about the overall environment, sometimes you can see very short-term delays in decision-making. So, we want to be cautious because of that actually, rather than anything specific that we see in our client behavior. What we are seeing is, maybe it's temporary. ... Let's say a deal is supposed to be signed today. The client sees something in the market in the morning when they come in. They may delay actually that decision by two or three weeks till they fully understand the implications of that. The overhang of the global economy is in everybody's mind today. Are we going to see something dramatic happen suddenly? So, even though we are not seeing a reduction in IT budget, for example, we are not seeing a reduction in the IT budget. We believe that the money will be spent, but it may be delayed spending for the year. That is what we are cautious about. So, these delays are temporary in nature. So, for example a deal, which is supposed to close last quarter, may close early this quarter actually. It's a temporary delay. It's just not anything more specific than that. It is not attributable to any one thing. Something happens in the environment, which raises a concern. Suddenly a decision is taken to be cautious. That's it. So, there is nothing specific I can point to. These are temporary delays we see occasionally in decision making. So, it just is a delay for a week, two weeks, sometimes. So, these are not permanent. We are not waiting for something to close within an uncertainty. If a client says, "Yes everything is fine, but I will sign next week"-that kind of thing. Nothing more alarming than that at this point.
One analyst in particular kept pressing the issue, and asked Gopalakrishnan when the delays really started to become apparent. His response:
During the course of Q1[first quarter of Infosys' 2012 fiscal year ended June 30] that's it, on the last three months. Even when the Greece situation happened, that's when we saw concerns and even in the financial services actually. ... So, that happens. Suddenly there may be a week or two delay before they assess the situation or see whether it's going to deteriorate further. Or, for example, when France decided to actually renegotiate the loans outstanding. There is a temporary feeling of normalcy coming back, right? So, those are the things I'm talking about.
Seriously, Kris? There was nothing specific you could point to as reasons for the delays, but when really pressed, the best you could come up with were the economic situations in Greece and France? Do you honestly think a company that has to make a decision about whether to sign a multi-million-dollar contract with Infosys is wringing its hands over the Greek government defaulting on its loans, not over the U.S. government investigating your company for institutionalized criminal wrongdoing?
This story is getting more surreal by the day. If it wasn't the cause of such anguish for the whistleblower who had the courage to expose the wrongdoing, and who continues to be treated by Infosys as a leper, it would be humorous. As it is, it's sickening.