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Infosys has registered a massive slump in revenue growth, as revealed in its Q4 results for 2023. This has left market analysts and investors disappointed. However, Infosys chief Salil Parekh is upbeat, and thinks the company can make up for it by embracing Generative AI (GAI). “We have examples where we are using ChatGPT with client situations,” said Parekh, without revealing much details.
In the latest financial report, the company’s Q4 performance after tax (PAT) stood at ₹6,128 crore, representing a substantial decrease of nearly 16% QoQ. Moreover, the revenue figures for the quarter were reported to be negative, with a decline of 2.2% QoQ, bringing the total revenue to ₹37,441 crore. However, in constant currency, the company’s revenue growth was reported at -3.2% QoQ and a positive 8.8% YoY.
The operating margin for Q4 was 21%. It is worth noting that Infosys’ headcount growth for the year 2022-2023 was 29,219 employees, which is a decrease of 46% compared to last year’s net addition of 54,396. This brings the company’s total headcount to 3,43,234 as of March 31, 2023.
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In addition, the Bengaluru-based IT giant has projected a modest growth rate of 4-7% in constant currency terms for its FY24 sales, which indicates the anticipated challenges that lie ahead for the company in the current year. The operating margin for the coming year is expected to be within the range of 20-22%, further emphasizing the company’s cautious outlook.
Infosys using Gen AI (GAI)
Infosys reported a disappointing result, which it attributed to the increasing financial uncertainty in North America and low client spending. The company also mentioned the potential of Generative AI as a source of new opportunities, a move that industry experts believe is simply a buzzword.
IT analyst and CEO of EIIRTrend, Pareekh Jain, commented on the trend, stating that the IT industry was betting on Metaverse a year or two ago, but there has been no significant progress in that direction. This year, Generative AI is the buzzword. Infosys CEO Salil Parekh, however, claims that the company’s operational margin for the full year is at 21%, and that Generative AI will create more opportunities. He explained that there was a one-time impact on revenue due to a combination of cancellations and specific issues.
Infosys further stated that it has active projects with clients that are working on generative AI platforms to address specific areas within their business. Parekh explained that the company had trained open-source generative AI platforms on its internal software development libraries. Infosys anticipates that generative AI will provide more opportunities for work with its clients and will enable the company to improve productivity.
However, Infosys has not adequately addressed how the adoption of AI will affect the hiring of freshers. Although the company’s total hiring, which includes both freshers and experienced software developers, decreased from the net addition high of 3,80,000 in FY22 to an estimated 2,80,000 in FY23, the impact on freshers is unclear.
GPT-4 is renowned for its bug-testing abilities, among other developer-centric tasks. Despite the fact that modern IDEs have had autocomplete for years, LLMs can generate longer, more relevant suggestions, sometimes even multiple lines of code. According to a 2022 study published in the Proceedings of the Association for Computing Machinery on Programming Languages (PACMPL), 20 programmers who used GitHub Copilot were able to code faster and stay in the flow longer thanks to end-of-line suggestions for function calls and argument completions.
Another study found that developers who used GitHub Copilot coded up to 55% faster than those who did not. However, productivity gains extended beyond speed, with 74% of developers reporting less frustration and the ability to concentrate on more fulfilling work. But does increase productivity from employees result in reduced hiring? While this may not be a direct correlation, CFO Nilanjan Roy did comment that the company has a rich bench of skilled and trained employees, providing leeway for the next few quarters in terms of fresher availability.
Analytics India Magazine reached out to Infosys regarding the data of bug testers in the company, to know if gen AI has any impact on it, but did not get a response so far.
Need for another segment for revenue arising from AI
As AI gains more importance in the IT industry and generates substantial revenue for companies, it becomes crucial for them to distinguish this sector from others in their financial reports. For example, Infosys operates across ten diverse business segments including financial services, retail, communication, energy, utilities, resources & services, manufacturing, hi-tech, life sciences, and others.
However, when disclosing their AI earnings, it often gets conflated with hi-tech and other sectors. Pareekh Jain points out that IT companies have been profiting from AI-related ventures long before “generative AI” became a household term. He emphasises the need for these companies to create a separate business segment for AI in their financial statements. “The time has come for IT companies to recognise the significant contribution of AI to their revenue and give it the recognition it deserves,” says Jain.