In a major jolt to India’s second largest IT services company, Infosys has lost one of its largest deals signed just a couple of months ago. The Bengaluru-based tech giant had in September announced inking a $1.5 billion partnership with a prominent global company to provide digital transformation services over 15 years. However, in a shocking turn of events, the client has now pulled out of the mega deal.
While Infosys did not reveal the identity of the client or give any reasons behind this unexpected move, the termination comes across as a significant business and financial setback for the N.R. Narayana Murthy co-founded the company. The massive contract was a major revenue driver earmarked for Infosys’ medium to long term growth plan involving cutting edge skills around AI and cloud offerings. Losing such a large deal at this stage creates uncertainty around the firm’s ability to meet client commitments and achieve projected profit targets.
According to industry watchers, the scope and scale of this project was expected to contribute significantly to Infosys’ overall revenues in the coming years. For a company that derives a bulk of its income from stable, long term outsourcing partnerships with global corporations, any major cancellations create significant order book and cash flow implications. It also raises some questions internally on what went wrong in winning and retaining the client’s confidence with regards to important digital undertakings.
With businesses slowing their IT spending worldwide and delaying large-scale adoption of disruptive technologies amid economic headwinds, clients seem to be taking a more cautious approach. This could have potentially influenced the decision to exit from the expensive agreement with Infosys. The sudden termination may also reflect poorly on the software giant’s bid management abilities or execution capabilities highlighted by the client during negotiations.
The deal loss is bound to impact Infosys‘ already muted financial performance. After slashing FY24 guidance recently, the $1.5 billion termination will further jeopardize its revenue and profit projections. This comes at an unfortunate time when rising expenses and higher staff attrition levels are also posing operational challenges. The dismal outlook seen by some analysts may now turn more pessimistic with such a huge contract failing to materialize as planned.
With senior leadership changes and multiple client deals not living up to initial hype over the past year, Infosys will surely feel the heat from investors. It needs to urgently regain lost ground and reassure shareholders by bagging fresh orders amid toughening market conditions. Strong client mining, better delivery monitoring and more realistic timelines will be crucial for Infosys to overcome this major setback and get its mojo back in the lucrative global outsourcing space in 2023.
