Infosys Technologies (NASDAQ: INFY) is an Indian IT services firm that develops custom software and provides business process outsourcing (accounting, HR, IT) for large corporations. Infosys has been a prime beneficiary of the outsourcing boom that has taken place in India throughout the 2000s. In recent years, however, Infosys along with other Indian firms have also faced rapid wage inflation, as U.S. corporations have flocked to India in search of inexpensive but skilled labor for their own overseas operations.
Although Infosys' margins have dropped in recent years, the company is still significantly more profitable than Wipro, its closest competitor. It commands larger, more lucrative projects, resulting in higher revenue per employee. At the same time, it pays its employees, particularly new recruits, less than the industry average. The company's reputation and its best in industry training make it easy for it to attract high caliber candidates, despite lower salaries..
In the near term, Infosys' biggest risk is its continued rapid growth. Infosys' business is employee intensive, meaning that the company has to hire large numbers of employees to in order to grow revenue. The company has grown from just over 15,000  employees at the end of 2003 to over 72,000 today.  While the company's reputation is a major asset in attracting new recruits, training and integrating increasingly large numbers of new recruits will prove a major challenge for the company.
Infosys makes most of its money from the development, maintenance, and implementation of software.
Infosys primarily serves the following industries:
Infosys is heavily weighed towards North America, and more specifically the US. North America accounts for 63.3% of sales. It is worth noting that Infosys only gets 1.6% of sales from India and only 10.3% of revenues come from outside of North America and Europe. 
|Consolidated Financial Snapshot|
|Operating profit (EBDITA)||18,680||19,330||3.50%||32,730||38,010||16.10%|
|Operating profit margin (%)||34.10%||34.60%||0.47%||31.90%||34.40%|
|Profit before tax||19,150||19,370||1.10%||31,100||38,520||23.90%|
|Profit after tax/(loss)||15,270||15,400||0.90%||27,350||30,670||12.10%|
|Net profit margin (%)||27.90%||27.60%||26.60%||27.70%|
|No.of shares (m)||556.9||573.3|
|Diluted earnings per share (Rs)*||110.2|
|P/E ratio (x)*||20.1|
What has driven performance in 2QFY10?
|In Rs m||1QFY10||2QFY10||Change|
|On basis of service offerings|
|Application development and maintenance||23,256||22,787||(2.00%)|
|Business Process Management||3,338||3,463||3.70%|
|Consulting Services and Package Implementation||13,352||13,292||(0.40%)|
|Product Engineering Services||1,313||1,285||(2.20%)|
|On basis of client geography|
|Rest of the world||5,308||5,417||2%|
|On basis of industry vertical|
|Insurance, Banking and Financial services||18,058||18,710||3.60%|
|Transportation & Logistics||1,259||1,285||2.10%|
India's high wage growth, pushes down INFY's margins. Demand for IT professionals has dramatically increased over the past several years. India has become a primary source for IT professionals leading to salary inflation. Salaries for Indian IT professionals have had an average annual growth of 14%. Although Infosys has seen its operating margins drop significantly, the company still maintains higher margins than its competitors. The company attracts higher revenue projects than its competitors, resulting in more revenue per employee. The company's reputation as the premier IT services firm in India also allows it to hire new recruits at below market salaries resulting in lower compensation costs.
Infosys' focus on high level recruits and intensive training gives it some of the most productive and effective employees in the industry. Infosys accepts less than 3% of applicants. Infosys is able to attract top level recruits with the promise of best in class training. Their training facility in Mysore is the largest corporate training facility in the world. Moreover, Infosys was one of the first Indian firms to offer stock options to its employees and has a policy of providing all employees with options. The options along with company's emphasis on ongoing training and its reputation as the top IT services firm in India, have helped the it to maintain some of the industry's lowest attrition rates.
Infosys gets the majority of its business from outside India. As a result, Infosys feels the impact of foreign exchange fluctuations more than most companies. In recent years, the dollar has appreciated against the rupee. Although Infosys is able to adjust its fees to compensate for a weaker dollar, continuing weakening of the dollar will make outsourcing to India less attractive to American firms. Infosys is also focused on becoming a more global firm and has hired employees in Eastern Europe as well as other parts of Asia resulting in an increase in currency risk.