Infosys to drive out of auto engg biz, focus on aerospace projects

MUMBAI: India’s second-biggest software exporter Infosys Technologies plans to stay away from top auto customers in its engineering services business and shift its focus from commoditised and price-sensitive projects.

Engineering requires a mix of programming and core engineering skills such as mechanical or civil, depending on the industry being serviced, and is billed at higher rates than traditional application development and maintenance projects.

“We have chosen to walk away from this (auto) industry because the work has become increasingly commoditised because of high competition. We are a premium services player and our contribution is value-driven,” said Valmeeka Nathan, vice-president and head of product lifecycle and engineering, Infosys. He said the company had chosen to de-risk revenues from this segment and instead focus on segments such as aerospace, which provides stability and visibility of revenues.

Some of the other focus areas for the company in engineering services will be sectors such as heavy engineering, hi-tech, energy generation, medical and apparel. Mr Nathan said aerospace contributed about 40% to the company’s engineering services revenues, with the remaining 60% coming from other sectors. “The contribution of the auto (sector) to our (engineering) revenues is minor. We do take on projects from auto clients but selectively,” he added.

“The nature of engineering services is different from software services, and requires a fairly different talent pool. Vendors have their own niche because it requires a fair amount of competency. It also doesn’t offer the same kind of scalability as the rest of the software business,” said Sandeep Muthangi, analyst with IIFL. “Even outside of engineering services, Infosys does not have much exposure to the auto sector,” said an analyst with a foreign brokerage.

With auto majors, General Motors (GM) and Chrysler, slipping into bankruptcy, the auto sector has been a trouble spot for IT vendors such as Tata Consultancy Services (TCS) and Wipro that service them. Revenues from the auto industry have declined and analysts said they could not comment on the current contribution of GM or Chrysler to the revenues of the IT majors.

However, on the sidelines of the recent Nasscom Global Engineering Leadership Summit, Regu Ayyaswamy, VP (engineering and industrial services), TCS, said that the company was seeing ‘some sporadic signs of growth’ from the auto industry.

Engineering services is expected to clock to $7 billion in software export revenues this year with over 50% of it coming from the semiconductor and telecom industry. However, by 2020 when engineering services revenues are expected to touch $40 billion - $50 billion, the auto sector is expected to hold its own along with sectors such as consumer electronics and aerospace.