Infosys Technologies Ltd. Business Information, Profile, and History

Company Perspectives:

We are a world leader in providing IT [information technology] consulting and software services. We offer offshore-software services, such as application development, software maintenance, Internet consulting, and establishing software development centers in different parts of the world to provide high quality rapid time-to-market solutions at affordable prices.

Our solutions cover a wide range of business areas including e-commerce and e-business enabling, warehouse and inventory management, and customer management for industries including financial services, insurance, retail, telecommunications, utilities, and manufacturing.

History of Infosys Technologies Ltd.

Infosys Technologies Ltd. is a software development company with headquarters in Electronics City, Bangalore, India, an area known as 'India's Silicon Valley' for its concentration of high-tech multinational and Indian companies. Cofounded by Chairman and CEO N.R. Narayana Murthy, Infosys Technologies has accomplished a number of firsts for an Indian company, including becoming the first to be listed on an American stock exchange and the first to offer an employee stock option plan (ESOP). About 500 employees have become millionaires as a result of the company's ESOP. In 2000 the firm's international client base included 200 American firms, for which Infosys Technologies provided software for enterprise resource planning (ERP), Y2K compliance, electronic commerce, and other applications.

Early History: 1980s

Infosys Technologies Ltd. was founded in 1981 in Bangalore, India, by N.R. Narayana Murthy and seven other software engineers with a combined investment of about $1,000. One of eight children of an Indian village official, Murthy would emerge as the company's chairman and CEO. He became regarded as the most highly esteemed manager in India, due in part to his mathematical abilities and Western style of management. The company opened its first international office in the United States in 1987.

Favorable Business Climate: 1990s

Following a series of economic reforms in India in 1991, Infosys Technologies began to grow more rapidly. It became a public limited company in 1992, with an initial public offering (IPO) on three of nine Indian stock exchanges to follow in 1993. In 1993 it received ISO 9001/TickIT Certification, and in 1995 it established development centers across India.

By mid-1995 the firm had 900 employees and was worth $120 million, with about $20 million in annual revenue. In addition to its 400,000-square-foot facilities in Bangalore, the firm had offices in Boston, New York, and Maastricht in the Netherlands. In 1996 it established its European headquarters in the United Kingdom. Its main facility featured more than 1,000 networked workstations for use in creating software. The company had written the reservation system for Holiday Inns in the United States. Other customers included Reebok International, Nestlé S.A., and AT & T.

Infosys established headquarters in what has been called 'India's Silicon Valley' because of its concentration of more than 100 foreign and domestic companies. The firm's main software development centers were in the southern Indian city of Bangalore in an area called Electronics City. Other high-tech companies with facilities there included Siemens and Hewlett-Packard. Such companies were attracted by the fact that none of the firms' workforces had to be unionized, software exports were not taxed in India, benefits were a relatively minor cost, and the profit potential was enormous. These cost-savings were first recognized by American multinationals in the 1980s.

India was able to provide these firms with highly trained computer programmers and software engineers. About 15,000 computer science majors graduated from universities in India every year. The Indian Institute of Science in Bangalore was equipped with the most advanced technology, and the government supported the university system by providing millions of dollars for training.

Exponential Growth: Late 1990s

For fiscal 1998 ending March 31, Infosys Technologies reported net revenue of $68.33 million, a 73 percent increase over fiscal 1997. The company's growth was fueled by its offshore software development model and the branding of some of its services. Infosys Technologies offered its clients an offshore model, whereby the company would replicate the systems and infrastructure of its international clients in India. During fiscal 1998 the firm's market capitalization rose to about $770 million from $192 million at the end of 1997.

Four marketing offices were opened during fiscal 1998, including two in the United States and one each in Canada and Japan. The company had a total of 12 marketing offices, eight in the United States and four in other countries. During the year, the company gained 40 new clients. More than 70 percent of the company's revenue came from repeat business.

Initiatives launched during the year included offerings for engineering services, Internet and intranet solutions, and Enterprise Package Solutions. The company was also addressing Euro conversion issues. Technical staff increased during the year to 2,186 from 1,396 at the end of fiscal 1997. Total employees increased to 2,622 from 1,701.

The company expanded the decentralized development of software by commissioning the Infosys Towers facility at J.P. Nagar, Bangalore, during fiscal 1998. The development centers at Pune, Bhubaneswar, and Chennai were also expanded. The company also began construction on Infosys Park at Electronics City, Bangalore, to be completed by December 1999.

It was during fiscal 1998 that Infosys Technologies become one of some 20 companies in the world to reach Level 4 of the Capability Maturity Model (CMM) of the Software Engineering Institute (SEI) at Carnegie Mellon University. The certification covered fixed-price software development, maintenance, and re-engineering processes, which together contributed about 90 percent of the company's revenue. Obtaining the certification reflected the firm's commitment to meeting international quality standards.

In October 1998 Infosys Technologies held its third annual customer conference. The company used the conference to disseminate its best practices across its client base and to enhance the power of its global delivery model. Nearly 60 client representatives participated in this year's conference. The company stressed long-term relationships with its clients. In 1999 repeat business accounted for 90 percent of revenue, up from 83 percent in 1998.

The company's principal source of revenue, on a geographic basis, was North America, which accounted for 82 percent of revenue in both 1998 and 1999. Europe accounted for eight percent in both years, and India, approximately three percent. The rest of the world accounted for the remainder. During 1999 the company opened an office in Seattle and shifted a European office from Maastricht in the Netherlands to Frankfurt, Germany, giving it 13 marketing offices outside India, including nine in the United States.

That same year Infosys Technologies expanded the range of its services and was becoming a full service partner to its clients. Projects the company worked on included ERP projects, a loyalty management package utilizing Microsoft technologies, and a system and security architecture consulting study. Its Internet consulting and development group designed and built high-performance and secure infrastructure for electronic commerce. During fiscal 1999 Infosys Technologies added 39 new clients, including The Boeing Company, Paradyne Corporation, and AMP Inc.

Infosys Technologies was listed on the NASDAQ stock exchange on March 11, 1999. It was the first India registered company to become listed on an American stock exchange. Listing on the NASDAQ enabled Infosys Technologies to institute an employee stock option plan through the use of American Depository Receipts (ADRs), each of which was worth half a share. By mid-2000 the company had issued 4.16 million ADRs.

Moreover, listing on the NASDAQ was expected to help the company raise money to finance its drive to become a global company, grow through acquisitions, and enhance its image. It would help the company attract a high-quality workforce by offering employee stock options. Infosys Technologies had been hiring 800 to 900 new employees per year. The IPO raised $70 million, and in the months following the IPO the company's stock price rose 20 percent. According to Business Week, the company gained $1 billion in market capitalization on its first day on the NASDAQ. By the end of 1999 the stock was trading at $290 per share, a 15-fold increase over the IPO price.

At the beginning of 1999, most of the company's growth was expected to come from developing customized software. The company was also getting into Internet and intranet applications, enterprise resource planning (ERP) software, electronic commerce, and Euro conversion software.

During fiscal 1999 the company attained SEI CMM Level 5, the highest level assessed by the SEI for quality. It continued to build up its infrastructure by completing its new facility, Infosys Park, at Electronics City, Bangalore, which could accommodate up to 2,000 software and support personnel. At the beginning of 1999 it began construction of a new software development facility at Pune Infotech Park, Hinjawadi, Pune. The first phase of this facility would have capacity for 1,200 professionals. The company also opened offices in Germany, Sweden, Belgium, and Australia.

In mid-1999 an integrated extranet developed by Infosys Technologies for longtime outsourcing partner Nordstrom Inc. went online. It used a Windows NT software application that enabled the Nordstrom Product Group to combine 20 spreadsheet applications into an integrated applications environment of databases linked over the Internet.

Other repeat business came from the firm's Y2K work. For example, Infosys Technologies had performed Y2K compliance work for insurer Aetna Inc. during 1999, using about 50 software programmers and engineers. At the beginning of 2000 Aetna contracted for an additional 300 Infosys employees to develop its electronic commerce initiatives in the areas of global healthcare and financial services. Using the Infosys offshore model, Aetna worked with the firm's U.S. office, which in turn conveyed information to programmers in India.

Infosys's Global Delivery Model enabled it to develop software collaboratively in different geographic locations. For example, a project's requirements might be outlined in the client's New York offices, with software development done in Bangalore, and deployment anywhere in the world. The time differences associated with different parts of the world enabled Infosys Technologies to provide 24-hour productive days and problem-solving.

As of February 2000 the company had a market capitalization of more than $20 billion. For fiscal 2000 ending March 31, Infosys Technologies reported revenue of $203.44 million, compared to $120.96 million in 1999, an increase of 68 percent. Net income rose from $17.45 million in fiscal 1999 to $61.34 million in fiscal 2000. A statement from CEO N.R. Narayana Murthy noted, 'Demand for e-commerce services, an area where the company has a proven track record, continues to drive our revenue growth.'

During fiscal 2000 Infosys Technologies made its first strategic investment in a leading-edge technology company, committing $3 million to Massachusetts-based EC Cubed, Inc., an application provider for business-to-business electronic commerce.

The company reported a net profit of $28.4 million in the first quarter ending June 30, 2000, compared to $13.6 million for the same period in 1999. Overall revenue rose to $83 million, compared to $48.2 million in 1999. These results exceeded analysts' expectations. One analyst predicted the company's profits would double in the next two quarters, due to surging exports, higher priced services, and a larger proportion of high-margin e-commerce work.

For the quarter ending June 30, 2000, Infosys said that e-commerce work made up nearly 29 percent of its total revenues, or $22.6 million, compared to nearly 19 percent in the quarter ending March 31, 2000, and 6.4 percent in the same quarter in 1999.

During the first quarter of fiscal 2001 Infosys Technologies increased its workforce by nearly 20 percent to 6,446 employees. The company was expected to grow to more than 7,500 employees by the end of fiscal 2001 (March 31, 2001). In issuing a 'buy' rating, Merrill Lynch noted that many of Infosys Technologies' customers had asked the firm to increase its 'team size' by 80 to 100 percent over the next year.

In August 2000 Infosys Technologies opened an office in Hong Kong to take advantage of the e-commerce activity there, especially in business-to-business applications. One analyst estimated that the Asia Pacific region would account for nearly 20 percent of global business-to-consumer and business-to-business electronic commerce by 2003. Opening the office was part of Infosys Technologies' strategy to expand its e-commerce business from the United States and Europe into the Asia Pacific region. Its clients have included Amazon.com, Blue Martini, Cephren, Cisco Systems, Dell Online (Japan), EC Cubed, preis24.com, and SAPMarkets.

With a growing client base, support from investors, and a reputation for quality, Infosys Technologies appeared likely to remain a leader in developing software systems and applications for the exploding global electronic commerce market.

Principal Competitors: Analysts International Corporation; Cambridge Technology Partners, Inc.; Computer Horizons Corp.; Computer Sciences Corporation; Cap Gemini America; Keane Inc.

Chronology

• Key Dates:

• 1981: Infosys Technologies Ltd. is founded in Bangalore, India, by N.R. Narayana Murthy and seven other software engineers.
• 1987: Infosys opens its first U.S. office.
• 1992: Infosys becomes a public limited company in India.
• 1993: Company issues stock through public offerings on three stock exchanges in India.
• 1999: Infosys becomes the first India-based public company to be listed on an American stock exchange, the NASDAQ.