Good morning. My name is Cynthia and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter Results Conference Call for Fiscal 2008 for Infosys Technologies. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. [Operator Instructions]. I would now like to turn today's call over to Sandeep Mahindroo from Infosys. Please go ahead sir.

Thanks Cynthia. Good morning and welcome everyone to this call to discuss Infosys' financial results for the quarter ending September 30, 2007. I am Sandeep from the Investor Relations team in New York. Joining us today on this conference call is CEO and MD, Mr. S. Gopalakrishnan; COO, Mr. S. D. Shibulal and CFO, Mr. V. Balakrishnan along with other members of the senior management. We will start the proceedings with a brief statement on the performance of the company for the recently completed quarter followed by the outlook for the quarter ending September 30, 2007 and year ending March 31, 2008. After that we'll open up the discussion for Q&A. Before I pass on to Infosys management, I would like to remind you that anything that we say which refers to our outlook for the future is a forward-looking statement and must be read in conjunction with the risk that the company faces. A full statement and explanation of these risks is available at our filings with the SEC which can be found on www.SEC.gov. I will now pass on to Infosys management. S. Gopalakrishnan: Thank you Sandeep and thank you all for participating in this call. Good afternoon, good evening, good morning to each one of you wherever you are. This is the first quarter we have achieved $1 billion dollars in revenue; in that sense, it's a significant milestone for Infosys. Growth has been 37%, if you look at the corresponding quarter [ph] last fiscal. We have seen growth across the various industries in which we are operating: banking and capital markets, insurance, retail, manufacturing, energy, utility. So the growth has been very broad. We have seen growth across all the top 25 customers. When you look at it from a 12 month perspective, quarter-upon-quarter, there are some variations. So this quarter, we saw the non-top 10 clients growing faster, much faster than the top 10. But if you look at the last 12 month period, we have seen good growth from all our top clients. We have added 48 new clients this quarter. So our ability to attract new clients to come to us is also very good. We have added about 8500 employees gross this quarter. Though we said that we'll add 11,500, what happened was we had to postpone the joining dates for about 2500 to October because our facility was not yet ready. We had some issues with the contractor for completion date. They could not procure cement for completion etcetera. But we will be adding those employees in October and in fact, we are looking at a gross addition of 30,000 employees for the full year. We have improved our margins to 27... operating margins to 27.5%, 2.8% increase from last quarter. So we have actually recovered from what happened in the first quarter because of the rupee appreciation within a very short period of less than a quarter. And that shows the resilience of the model, that shows that we are able to leverage what levers we have in our business in order to sustain a margin and we see margins in a narrow band of 50 to 100 basis points for the remainder of the fiscal and our philosophy of having one of the highest margins in this industry continues to be a goal for Infosys. We have revised our guidance for the rest of the year. When we started the year, we started with 29% to 30%, then we increased it to 30% to 31% and now we are seeing a growth of 34.5% to 35% for the full year. That's almost... for 5% increase in our guidance for the full fiscal year. So with this, let me hand it over to Shibulal to give you more information on how the revenues segmented and things like that. S. D. Shibulal: So this is Shibulal. Thank you for joining the call. As Kris said, we have crossed $1 billion in revenue in a single quarter. It's a major milestone for Infosys. Our sequential growth was 10.1%. Out of that, the volume growth contributed 7.7% and revenue productivity growth contributed 1.9%. Now we have seen overall growth in almost all segments. The BFSI segment, which is our largest segment, has grown 11.4%; manufacturing grew 13.2%, all this is quarter-on-quarter; retail grew 27.3% quarter-on-quarter; energy and utility segment grew 19.5% quarter-on-quarter. If you look at services, package implementation, consulting has grown. Consulting is now 5%; what we call two [ph] consulting is 5% and the package implementation, which includes... which is also consulting oriented is 18.7%. It has gone... last quarter it was 18.4%. So our total consulting revenue, if you look at it in the industry standard rate, today is 24%. $241 million of revenue we derived from consulting this quarter. Our Independent Validation Services has grown 13.6% quarter-on-quarter. Again, giving some color on the revenue, our fixed price has gone up by a couple of basis... couple of 100 basis points to reach 31.5%. Our on-site has remained stable, marginally decreased from last quarter and it is 31.7% in Q2. Our revenue productivity has gone up 1.9% blended. 2.9% on-site revenue productivity increased, 2.6% offshore revenue productivity increase, which has led to a 1.9% blended revenue productivity increase. It's very interesting; this is a sixth quarter in which we have revenue productivity increase. The last six quarters we have had continuous revenue productivity increase. Last year, we had gained 5%... 4.7% or so year-on-year revenue productivity increase. We have... the billing rate continued to be stable with an upward bias. New clients, new contracts are coming at around 3% to 4% higher than our average. Contract renegotiations are also coming at 2% to 3% above average. Our growth is all around. The top 10 customers grew by 2.7% quarter-on-quarter, but if you look at it on a year-to-year basis, you will see strong growth in the top 10 customers. Non-top 10 grew 13.7% sequentially. As Kris said, we added 48 new customers this quarter. The total number of clients is 520. Number of $1 million clients have also gone up. Last quarter it was 285; this quarter it is 295, 295 clients, giving us more than $1 million per year. 16 clients contribute more than $50 million of revenue on the LTM basis, 5 more than 90 and three more than 100. Fortune 500 clients, we have 113. This quarter, out of the 48 clients which we added, 3 of them were Fortune 500. Our DSO has remained stable; actually it has come down to 55 days compared with 67 days last quarter. Out of the DSO, 80.9% of our DSO is less than 30 days. Utilization has gone up from last quarter to this quarter. It will reach 79.5%. Last quarter it was 75.1%. But the other number to notice is utilization including trainees, which is at a very healthy rate of 71.2%. This means that we have enough capacity in training, which will take care of our growth requirements for the coming quarter. As Kris said, we will be recruiting 30,000 people this year, including the Phillips lift out of 1400 people. We have given salary increase of 12% to 15% offshore and 5% to 6% on-site effective April 1st. The salary increase has been neutralized using the number of labors we have and our margins have up by 280 basis points in dollar terms. Our visa utilization is at a healthy rate of 67%. Our subsidiaries are doing well. Our American [ph] subsidiary is doing well. China and Consulting continues to be in investment mode. China has 650 employees. Infosys Consulting has 236 and we have a new subsidiary in Mexico. We have opened a center in Mexico and that has 27 employees as of this quarter. We have 3400 plus employees including consulting and package implementation which is contributing 24% of the revenue. With that, let me hand over to Bala to give color to the financial statement. V. Balakrishnan: Hi. This quarter we have seen revenues growing by around 10.1% sequentially. We crossed $1 billion in revenues. Our gross margin went up to 42.2% from 38.7% last quarter. The operating income gone up to 27.5% from 24.7% last quarter. We have seen improvement in operating margin of 2.8%, which basically came in because the visa cost, which was around $16 million in the first quarter, has come down to $3.5 million because there was a window of opportunity to apply for H1 visas in the first quarter. That contributed positively to the margin by around 1.2%. The G&A cost came down by around 90 basis points. Because of the bill rate increase of 1.9% on blended basis, we got a positive impact on margin of 1.1%. Rupee impacted the margin by around 50 basis points. It was appreciated by 1.2% during the quarter. So net-net, the net operating margin went up to around 2.8%. The effective tax rate slightly went up this quarter. Last quarter, we had a tax reversal of $13 million. If you normalize that, the effective tax rate last quarter was 13.9%. This quarter it went to 15.1% basically because we had seen some improvement in the profits on-site. In all the countries we operate, we do pay taxes and the tax rate has gone up because of that. We had given a guidance of $0.46 as EPS. We had done $0.48. We have seen good growth all around, and in terms of guidance, we had increased our guidance for the full year. We are saying the revenues could grow somewhere between 34.5% to 35% for the whole year, but the earnings per share could grow somewhere between 29.4% to 30.1%. If you exclude the tax reversal, which you had done last year and what you had done in the first quarter of this year, the effective tax and [ph] EPS could grow somewhere between 32% to 33%. We had assumed the bill rate to be similar to what you have seen in the second quarter for rest of the year. We assume the currency to be at 39.5 for the next six months. We have not assumed any large deals in the guidance. We have not assumed any price increase in the guidance from what we have seen in the second quarter. We also assume that the utilization could be somewhere between 76% to 80%. We have seen the utilization slightly going up this quarter, but when you add more people in the next two quarters, it could come within the band of 76% to 80%, more closer to the lower end of the band. So, overall, we have seen strong growth in all areas. We had improved our margins in spite of the currency going against us. We had increased the guidance for the whole year. The momentum for revenue growth continues. I think with this, I will conclude my presentation. We'll open up the floor for Q&A. Thank you. Question And Answer

[Operator Instructions]. Your first question comes from Joseph Foresi with Janney Montgomery Scott.

Hi gentlemen and nice quarter, nice execution this quarter. I know you talked about a little bit about this in the Indian conference call, but I wonder if you could just talk about what you are seeing as far as budgeting and spending on IT services heading into next year. S. Gopalakrishnan: Hi. This is Kris here. Currently, we are seeing that, for this year it will continue to... it is probably it is continued to spend on IT. In fact, some analysts are even saying that this year's expenses and this year's spend is higher than last year than our 8% or so. And the reason... some of the reasons we see are because company's wants to expand into newer markets, especially developing markets etcetera, they are spending in technology, they are spending in acquisition, mergers etcetera, and that is one of the reasons why this spend is going up. Now for next year, it will all depend on how the budgets are set in the first quarter. In the past, we have seen that offshore benefits disproportionately because company's transition was to offshore continuously and offshore has become mainstream today. So, overall, the environment seems to be positive with no signs of slow down, maybe slight uptick and definitely trend towards offshore.

Have you seen anything on the discretionary spending side of things? S. Gopalakrishnan: In fact, if you look at our consulting package, implementation, consulting etcetera, these services are growing. So we are not really seeing any slowdown on the discretionary spend also. Most of the investments into newer geographies, newer areas and innovation. There is a lot of interest in things like RFID, grid computing, Software as a Service. So there is investment happening in innovation, discretion etcetera.

Okay. And just one last final question here, have you guys taken a look at any implications from the expiration of the tax holiday and anything that we could... and what that would do to your tax rate heading into '09 and any indication that what would happen politically as far as that tax holiday going away? Thanks guys. S. Gopalakrishnan: As it stands today, we have the social economic zones in some of the centers already operational and, in other centers, we are in the process of getting all the approvals and setting it up. So we will have most of our incremental growth coming up in SEZs. As the STP scheme comes to an end in 2009, you will see an increase in our tax... effective tax rate right now around 14%, it may go up to 20%, 21% as is today... see today. But if you are able to accelerate the growth in the SEZs, it may be even lower than that, and then it will continue to dip. I will... and from a political side of course, the industry is looking at support from the government to continue the tax holiday. We will have to wait and see what the response from the government will be. I will let Bala add if he has anything to add. V. Balakrishnan: See, as of now, the loss trend [ph], the tax holiday could go off in 2010, but we have to wait and see because there could be a new government in place in 2010, and we have to see what they are going to do. But as of now, the law is the tax holiday could go off. Our effective tax rate today is somewhere between 13.5% to 14.5%. If the tax holiday goes off, it could go off to may be around 20%, 22%.

Your next question comes from Trip Chowdhry with Global Equity Research.

Thank you and again, congratulations on very, very good execution here. Two questions. First is we are getting some data points that avionics industries, the verticals, is having some increased traction with Indian IT services companies. I was wondering what kind of services can Infosys be providing to the avionic sector. And the second question I have is regarding setting up more businesses, or Infosys offices in rural India. I was wondering, do you have any specific locations where you are looking into setting up new offices? Thanks, and again, congratulations on very good execution. S. Gopalakrishnan: So we have actually a broad range of services for the aircraft industry, traditional application development, maintenance, consulting. We do engineering services, we do embedded systems work, product development work. As you know, we are working with the two major aircraft manufacturing companies. There is also an opportunity for companies in India through the Offset Program. Infosys is one of the companies who is approved for the Offset... for participating in the Offset Program, and that could also be an opportunity for us. So we have good set of services, good opportunities in the aircraft industry. To the second question, Infosys is today in four tier-1, what we call tier-1 cities, Bangalore, Chennai, Hyderabad and Pune and actually six tier-2 cities: Jaipur, Chandigarh, Bhubaneshwar, Mysore, Mangalore, Trivandrum etcetera. So we are looking at tier-2 cities as we expand. We do like to look at tier-2 and tier-3 cities. We don't want to speculate on any other new locations because then that would create problems for us and it could actually create speculation. So we would just leave it. We would look at tier-2 cities as we grow.

Thank you.

Your next question comes from Julio Quinteros from Goldman Sachs.

Great. Thanks guys. As we kind of look forward and think about where utilization is currently trending right now, what do you think is the opportunity for utilization as you kind of think about the sequential trend in utilization, especially as we think about sort of two factors: one, utilization as it relates as a revenue driver and two, utilization as a potential offset to continued rupee appreciation? S. D. Shibulal: Well, utilization is at a very healthy rate right now, 79.5%. We are quite comfortable with 76% to 80%. We have seen more than 80% in the past occasionally, 81%, 82%. If you take it on a healthy level, that will impact our ability to grow, because we need the supply chain to grow as well as to take advantage of any opportunities which will come around. And so I believe, and as Bala said, now we have a large number of people in training. If you look at our utilization including trainees, it is only 71.2%. So once the trainees get released into the system, the utilization will remain within that band of 76% to 80% for the next couple of quarters. And Bala will add to that. V. Balakrishnan: See, utilization, we always said we are comfortable with... within a band of 76% to 80%. It has gone up slightly this quarter, but when you begin the year, we always want to end up with a utilization which is somewhere to the closer to lower end of the band because we want to have enough flexibility in the model to make sure the growth is there when you see market opportunities. To some extent, our utilization is a function of the market demand we see and is a function of the demand environment.

Got it. And then Bala, one thing I wanted to ask was the... and I noted the sequential uptick in fixed price work relative to time and materials work. When, just in terms of the way that they are working, is sort of accounted for. I know that the unit contribution for those two is about the same, but when should we expect to see margin benefits from increase in exposure to fixed price or are we already starting to see it? V. Balakrishnan: Actually, the fixed price has gone up this quarter, which is our strategic direction to increase our fixed price. If we can increase our fixed price and execute them at a higher productivity level, the result of that will be value accrual towards Infosys. So we are focused on the fixed price. We have come up with... we have a separate tool and use group now for the last 12 months. They are very much active and focused on increasing productivity. So by increase in fixed price and if we increase productivity in the fixed price projects, we will have the value extraction towards Infosys. And our fixed price today is higher than our average margin by 3% to 4%.

Great. Thank you.

Your next question comes from Moshe Katri with Cowen & Company.

Thanks. There seemed to be a disconnect between what Kris was saying about... what you were seeing Kris about demand trends versus your December quarterly guidance, especially in terms of sequential revenue growth. And I mean, I'm just curious, obviously, your stock has been down pretty aggressively in India. It's opening... it's probably going to open down again today. Seemed to be mostly on concerns over your guidance. Are you... in your guidance, do you want us to... do you feel that the takeaway from this call should be that Infosys is cautious about the spending outlook for December or Infosys is being conservative? What do you think we should kind of conclude from this, because the clearly the market is taking a stand here about in terms of what they are understanding from the numbers? Thanks. S. Gopalakrishnan: So we have clearly said that we are not seeing any slow down. Of course, January is when the budgets are reset. So next year, we will have to wait and see. But we are not seeing any slow down. We have seen broad growth across the various industries. See, we give guidance based on what we see. We have a method to how we do guidance etcetera, and we base it on that. We also make sure that we have slack in the system so that if we see opportunities in the market, we are able to take a full advantage of that and grow faster than that. And so basically, the guidance is based on what we see in the market today and what we see. We have revised our guidance for the entire year to 34.5% to 35%. And Q3 typically is slightly slower, so that's also reflect.

But Kris --? S. Gopalakrishnan: No, no, I'll answer the question. The difference between the two markets is the Indian market looks at the Indian rupee guidance, and the rupee has appreciated, the volumes are higher than the growth in the EPS in rupees in India. Whereas I guess you folks look at the U.S. dollar guidance, even though you look at the markets in India. And if you look at comparables in the U.S., 35% growth in the top line and near that in EPS growth for a year among comparables in the United States is something that people compare with to see how well you are growing. Whereas in India, they look at 20% because the rupee has appreciated and they said that it's not the same like last year. So I think the currency is a live fact between the two markets and that's how people see it differently.

I am talking more about the fact that, sequentially, your growth this quarter was about 10% or so. And your guiding for a deceleration in sequential growth of 5% to 6% in the December quarter, and this is without even factoring some sort of a wage... some sort of a... or bill rate increase, so if... in this quarter, it was about 1.9%, so assuming you will get another 1% for the December quarter, then we are really talking about 4% to 5% sequential growth and then we are really talking about a deceleration. So, I think we are looking at the pure sequential revenue growth numbers, and I don't think it really has to anything with the Indian rupee. And that's why... that's what my question was about. S. Gopalakrishnan: No, no it's not really so. If you look at the last few years, you had always seen the third and fourth quarter to be soft quarters because third quarter there are a lot of holidays, fourth quarter, the first quarter when the clients finalize their budget and start spending. You are talking about the larger base also, right? So if you look at even Q3 of '06 or even Q3 of '05, the growth has been slower in the third and fourth quarter as compared to first and second quarter. What the Indian markets focus on is the rupee growth, not the dollar growth. We are seeing great momentum in the business. 35% growth in revenues is a great achievement in this kind of environment with a base of $3 billion. This year we'll be ending at $4 billion. So I don't think... the markets are looking at two different numbers and coming to different conclusion, but if you look at the momentum in the business, if you look at the growth, I think 10% growth in a quarter and 35% growth in a year is a great growth.

Okay, that's fair. So you are talking about seasonality. And then just briefly, the question is for Mohan. The hiring for the quarter was a bit light, maybe you can talk a bit in detail about what's going on in Mysore and talk about your hiring targets for fiscal '08. Thanks. T.V. Mohandas Pai: In the guidance given at the end of the first quarter, we had said that we'll have 11,000-odd people joining us this quarter. 8500 have joined. We had challenges in Mysore because infrastructure for training did not come up to speed; they were delayed by three months because the contractors defaulted in completion and there is a cement shortage in India. It sounds funny for me to say this, but it is true. So the people who were supposed to join in the second and third quarter September are now going to join in the first and second quarter, the first and second week of October. So we got about... the offers are there. They are all from the colleges and they are joining now, some of them have already joined. So I think we are okay. Will it impact our business for this year? No. Because we have 5200 people in training, a large number of them are coming off training and joining delivery in this month, so the people who are supposed to join us in our last two weeks of September were the people who will come off training sometime in January. And we have enough people to work and to make sure that we have enough slack in the system by the time we end this financial year. We have increased the guidance for number of hires from 26,000 to 30,000; 26,000 at the end of the first quarter to 30,000 now. Out of the increase of 4000, 1500 are acquired through the Philips's deal and the balance 2500, organically, we would like to hire from the marketplace. We got a recruitment team in place. This year we'll be hiring 30,000 people as against 31,000-odd we did last year. So actually increase in the hiring.

Great, thanks. Thanks for the clarification. Finally, just brief comment. Mohan, may be you can talk a bit about your outlook for wage hikes on an ongoing basis? We spoke about this very briefly in July and then since then we continue to see all kind of different media outlooks out of India talking about a potential moderation in wage hikes down the road. Is this something that Infosys sees and what's your view on that? Thanks. T.V. Mohandas Pai: Well, we do believe at this point of time that the wage hikes for next year will be in the range of 12% to 15% same as this year or the year before that. We do not see any signs of moderation for many reasons. One, the offers for freshers for the next year is already out. We already made 18,000 offers. Other companies have made their offers, and there is already a hike in the freshers' compensation by about 8% to 10%. And right now when you look at hiring in their lateral level, in the middle level, you see the wages going up. So next year definitely will be 12% to 15% as we see it at this point of time, and we do not see any moderation. Remember it is not only the IT industry that's hiring in India; it is the whole Indian industry hiring in India. Unless growth rates in India comes down significantly, there will be no let up in hiring. Do we see it going up more than this at this point of time? No. We are comfortable with this range. And following the 12% to 15% hike in salaries in April or March would mean a 7% to 8% increase in per capita salary cost for the whole year compared to the previous year because of the pyramidical structure that we have built. So we are quite comfortable with what we are doing and I think we are okay.

Thank you.

Your next question comes from Mark Marostica with Piper Jaffray.

Thank you and nice job on the quarter. Obviously, your offshore mix has been increasing over a number of quarters; this quarter jumped up over 68%. I am curious as to number one, what you see as potentially a practical limit to your offshore mix? And secondly, if could comment on the relative margin differential on-site versus offshore effort. Thanks? S. Gopalakrishnan: So we are comfortable with about 30% onshore and 70% offshore. But it is actually not the same across all the service lines we offer. So, for example, enterprise solutions, which started off as mostly onshore, almost all onshore, today has only 40% onshore and 60% offshore. So we tried to actually bring more efficiency. It's a win-win scenario for both Infosys and the client in the sense that the client sees lower cost and we see higher margins. So for the second part of your question on the margin improvement, typically, the margins are almost double when we deliver the work from offshore.

Great. And then I wanted to ask a question on the retail segment. You had a real solid result this quarter. Is that being driven by retailers who are seeing some sluggishness pushing more work offshore? And maybe if you can comment prospectively, are you sensing any hesitancy among your retail clients as you kind of look at their budgets coming up for this year? S. Gopalakrishnan: So retail for us is a global business and we saw good growth of retail in Europe. We have acquired new clients in retail in Europe, so that's partly the reason. So some of the new clients who have come in are in retail segment. And so client to client... no, sorry, for the same client, the growth as you said may not be as much, but across the world and across the total business, we are seeing good growth in retail. What is happening is retail companies are now looking at offshore more aggressively and trying to leverage this model as they see the environment becoming more global and environment requiring more efficiency from them.

And then last question, I'll turn it over, attrition ticked up this quarter. Can you give us a sense for some of the drivers that impacted this quarter?

This quarter on an LTM basis, we had 14.2% as against 13.7%. We made an analysis of this 0.5% increase. Out of 0.5%, 0.37% is due to the increase in the people who left us for higher education. We had 1300 people LTM leaving us for higher education as against 970 same time previous year. And if you look at this quarter versus the last quarter, there is an uptick in the number of people who left us for higher education because this is the season for MBA courses and M.Tech courses. And the number of people who left us in the month of August and September is down from the number of people who left us in July. July, we had a spike, and the spike because of people leaving us. So I think we are quite comfortable. If you remove the numbers about from involuntary attrition, we are at 12.8% out of 14.2%. And if you remove the number of people who leave for higher education, I think we are very comfortable at about 10.5% or so currently that's okay because only about 43% of the total people who leave us in a year leave us to join other companies, and that ratio has been almost the same for the last three years.

Great. Thank you.

Your next question comes from Rod Bourgeois with Bernstein.

Hey it's again Rod Bourgeois here. Mohan, I just wanted to follow up. We spoke of on the earlier conference call some about the attrition. I wanted to follow up on that point a little bit. The quarterly attrition, as annualize the quarterly rate, it looks like it jumped up to a little over 17% to the meaningful uptick. And it would also suggest mathematically that your LTM or your last twelve months attrition rate over the next couple of quarters did continue to rise. Is that the right way to look at it or is something going to happen to stem the tide on that in the next couple of quarters? T.V. Mohandas Pai: Well, we had 2700 people leave us in the services this quarter as against 2100-odd people who left us in the previous year, out of which we had about, I think if I remember rightly, about 700 people leave us in August and about 750 or 800 leave us in September. So it's been constant for the last two months, and the spike was in July and we had a spike in June. So June, July are the times when people leave us for higher education. If you net that out and look at it LTM and look at an annualized basis and look at it in a quarterly basis, it has come down. So I think net of this spike, I think we are quite comfortable. We have not seen a spike in people leaving us for compensation or for joining other companies. And I think... but what is interesting is the number of people who leave us for high education is increasing. I guess people have an aspiration that after working two or three years, they want to do an MBA degree. And people are always fascinated by MBA, and that's the spike. So apart for that, we don't see any other spike. So to the extent, I think we are... we are quite comfortable. I think it is under control.

But isn't that a trend that could continue and if so, the math would suggest that your LTM attrition could go up in the next couple of quarters? T.V. Mohandas Pai: Well, it all depends on how we stabilize in October, November and December.

Yes. T.V. Mohandas Pai: Because the trend has been down in the sense there is a spike LTM and if you take LTM up to July, it is up, then it came down in August and September if you take LTM. So if it remains the same pace in August and September for this month to the next two months, I think it will come... it's also coming down, so we'll see some stability.

But you don't view this as a new sort of challenge to deal with from a wage inflation perspective or just a ongoing ability to manage the supply part of the equation? Are you viewing this as a new challenge that's meaningful or kind of a relatively minor issue as you manage the supply side? T.V. Mohandas Pai: Well, people leaving us is always a challenge. You'd prefer they stayed back with us and build our careers, because it is always good to have great people working for you. And as always, you spend more money and effort trying to recruit from outside to fill the bridge because there are people leaving you. We prefer not... for people not to leave us. But we have to accept the reality, how it is that there are... there is opportunity here for in the local industries, India is growing at a very fast pace. So to an extent people would leave us. The challenge is to keep it within reasonable limits, which you can afford and manage. Is it hurting us in getting fresh talent from the marketplace? No, because our hiring of laterals has gone up and the lateral conversion rate has gone up compared to the previous year. So that is exciting. And even from the colleges, the supply is up. The challenge at the fresher level today in India is not the supply, it's an ability to hire and train people. They are all trainable people, you need to train, you need to invest in training, and that is a challenge. And we have built up the capacity, we could train 40,000 people a year in Mysore. Across the company, we have a system, we have a capacity to train 50,000 people a year and we could house all of them for up to four months in our campuses all over. So the cost of training is significantly less at any other corporation in the world. So I think we have built competitive advantages and we have taken steps to neutralize this.

Great, thanks for that. And I then the margin performance under those circumstances has been clearly impressive. On the earlier conference call, you guys indicated that discretionary spending could see some slowdown at certain clients that have a credit card business. And I was wondering if you could quantify what percentage of your client base might fall into that category of potentially having a slowdown because of credit-related issues.

If you are looking for the exposure that we have for companies that are in the mortgage business, it's about 0.5%, actually less than 0.5%. While also on a credit card basis, we are actually not seeing any slow down in our credit card clients. But we do... we are seeing some amount of provisioning that they are doing. So we think that they may be anticipating some kind of a slowdown as a result of the perceived adoption in the welfare side [ph] because housing prices start falling down. But all our conversations with our clients, we have not seen any reduction in any spend/budget or any cancellation of projects.

Right. But it sounds like beyond the 0.5% that's exposed to mortgages, there is slightly larger clients base that might be provisioning for some slowing discretionary spending. Can you quantify how big that additional client base is beyond the mortgage client?

Well all our clients... I mean you've seen the results that they have come out with are providing for something either because they are taking a charge off. Everybody has come clean, which is good, come clean in terms of what they are MBS or AVS portfolios are. In terms of being able to pinpoint the discretionary spend with these clients, it's all... I mean it varies from client to client. But clearly, in our conversations with our clients, we have actually not seen them talk about any cancellation, delays or deferrals of any kind of a project, whether discretionary, semi-discretionary or pure license [ph] as of today.

All right. So would you be surprised if there was a meaningful slowdown in discretionary spending that affected your growth outlook over the next couple of quarters?

Hard to say in terms of whether there really will be one. We are attracting and modeling all the macroeconomic indicators. We do not believe that there is any systemic risk out there. We do not believe there are any hidden surprises. But there will definitely be some amount of delaying for projects which could be done later on. So from that perspective, yes, we could see some discretionary spend getting deferred. But we again, to reiterate, we have not seen any of that, and neither in our conversations with our clients have we heard them mentioning it. But in this particular space, we are watching it very, very closely and we are in constant dialogue with our clients and we are modeling what we see and hear in order to see the impact it will have on their business as well as consequently on their IT spend in our business.

Thanks for the help for the extra color guys.

Your next question comes from Julie Santoriello with Morgan Stanley.

Thank you. Just a couple of questions. Could you talk about the outlook for pricing bill rates for next year? It's been a nice positive, nice challenge for you this year. Do you think that kind of increase in bill rates can continue for next year? S. Gopalakrishnan: So it is probably too early to talk about next year. We have two more quarters. We have seen six quarters of increased per capita income for the company; this quarter 1.9%. The trend is positive. We are seeing that 3% to 4% increase in new contracts and about 2% to 3% when contracts come up for renewal; not all of them, at least some of them. So the trend is positive. Clients realize that costs are going up in India. Of course, they would benchmark it with inflation rates and things like that in the country in which they are operating rather than India. But we are seeing consistently that 2%, 3%, 4% is possible. And then the way we have constructed the model, Mohan talked about 12% to 15% increase in compensation in India. That is about 16%, 17% of our revenue, overall revenue. And effectively, and over the year Mohan also told that it comes down to about 7%. So if you look at the effective impact of compensation increase, it comes down to about approximately... it comes down to approximately 1% or 1.5%. And that is something which we can absorb because we are seeing that revenue per employee, the per capita income per employee is going up, and that's why the model is resilient and model is able to sustain the margins we have.

Thanks, that's really helpful. If I could also ask you if we do see a general slowdown in the global economy and we could begin to become more concerned about budgets, customer budgets for next year, which parts of your business would you be most concerned about? I mean do you think you would see it first in the ITO business or the BPO business? S. Gopalakrishnan: See, the BPO business is much smaller. So we are not seeing any slowdown, but if there is... the rest of the company can easily absorb. The BPO business dynamics is also very different. They are in several conversations already, several deals already. And I don't know whether those will get pulled back at this point, because most of the reasons for looking at offshore is actually improvement in efficiency, reduction in cost etcetera. And if there is a slowdown, there will only be an acceleration of move to offshore. And when it comes to IT outsourcing, the primary driver has moved to offshore rather than IT spending. The primary driver for our growth is the move to offshore, and that I think continues to be strong. This has become the mainstream model for even global system integrators, the number of employees in India is growing. So everybody sees that the opportunity for the future is really leveraging the GDM model and offshore should continue to increase. We see this same from other analysts, that is technology analysts, we see this in the NASSCOM-McKinsey Report where they are predicting that the industry should continue to grow at 25% to 30%. And in that growth, the larger companies are seeing disproportionate share of that growth.

Makes sense. And just lastly, can you comment on your appetite for acquisitions right now, and particularly if acquisitions will be necessary to expand geographically? Thank you. S. Gopalakrishnan: Acquisitions can accelerate our entry into a market, acquisition can fill a gap in the services footprint we have, acquisitions can help us become a larger player in the consulting business etcetera. So acquisitions definitely is important for us. Now having said that, you know the history of acquisitions is that 85% of acquisitions do not deliver the value they are supposed to deliver. So we are careful in selecting the companies. We have certain parameters which we look for in terms of strategic fit, overlap of business, overlap of clients' ability to retain employees and the profitability of the business, valuation, the values, culture, ethics, how we can integrate both the organizations. So we look at many of these parameters, and if we find some company which fits these and of course they need... they would... they should want to be acquired. We are not looking at a hostile takeover or something like that. So they should want to be acquired. And then you will see Infosys doing an acquisition. There is another kind of acquisition, which is participating in outsourcing deals like the Philips deal, and you will see Infosys becoming active, more active in that space also. So you will see two kinds of acquisitions from Infosys.

Your next question comes from Andrew Steinerman with Bear Stearns.

Hi, thanks for taking my question. If you had met your hiring plans for the September quarter, do you think revenue growth would have been higher? In other words, the couple of weeks shift out of people coming on board, do you think that constrained revenue growth in this September quarter in any way?

No. We had enough people in the system to possibly grow 3% to 4% more.

Okay. So when you look back at the September quarter, the 7.7% volume growth, is it fair to say the constraint to growth would be demand, not supply?

Absolutely. Especially for us.

Okay. Thank you very much.

Your next question comes from David Grossman with Thomas Weisel Partners.

Thanks. Actually, just to expand on Andrew's question. I mean it looks like on a year-over-year basis, you weren't [ph] capacity constrained, but unit growth decelerated to about 28% year-over-year and had been in the low to mid 30s. And I was wondering if you could just help us understand, at least from your perspective, how we should view that. And then secondly, if you could perhaps relate that, I think, you said also that your gross headcount adds would be up maybe 1000 people year-over-year, but essentially flat. So, perhaps you could kind of relate what you are seeing on the unit growth side also to what you are doing on the headcount side. Thanks. S. Gopalakrishnan: David, see, we model the business for a particular growth rate based on how we see the business. And to a certain extent, that is also a limit to our growth. We provide for slack. As you know, 77% to 81%, a 4 % improvement in utilization for a quarter or so is possible, is sustainable. And you saw a perfect example of that in this quarter where we had budgeted certain growth rate, but we grew much faster. And of course we will help with an increase in per capita income also. So the way we look at our business is that we want steady, consistent, performance and growth and sometimes some clients grow faster. We do get surprised because of that. But the duty is that we are able to take advantage of that and grow the business. That's what typically happens. Other than that, there is no slow down or anything like that, and the business is a planned growth business.

So you wouldn't view the 28% year-over-year growth as a deceleration or just lumpiness in your model? S. Gopalakrishnan: Yes.

I see. And I guess looking at the margins, in terms of the dynamic between pricing, mix and utilization, could you give us some relative weights on how important those three items, each of those three items, were in terms of driving the realization rates up in the quarter? V. Balakrishnan: No, no, we had to use some of the levers, or all the levers at some point of time. Pricing is good because any 1% increase in pricing, it will have a impact on margins by around 60 basis points. Utilization could give a benefit of 40 basis points. Scale benefits, we have to see. It could be somewhere between 50 to 60 basis points. So I think all those levers are very important, but we may chose to use some of them or all of them at some point of time.

But I think you said that utilization will be coming down sequentially as you hire and bring in these incremental hires. So to hold the margins within your 50 basis point band, what are the levers that are going to allow you to do that with utilization coming down in the second half of the year? V. Balakrishnan: What we said was we always want the utilization to be within the band of 76 to 80, closer to the year. Probably, we will try to bring it down to the lower end of the band. If the utilization probably goes down, say, by around 2%, probably it will have an impact of around 80 basis points. So you can get some lever out of the G&A cost and also the on-site/offshore mix coupled with some increase in pricing.

I see. And one last question about the other income. It looked like it was down more than I would have anticipated even with the more stable rupee. Was there any other dynamic probably [ph] going on there in terms of rates or anything else that would have impacted that number sequentially? V. Balakrishnan: No, I think it was basically because of the yield, and last quarter the average yield was something around 11.5%, 12% on the money we deployed. This quarter, it has come down to around 7.5%, 8% because there is enough liquidity in the banking system. So generally, interest rates have come down. And last quarter we also had a ForEx benefit of around $17 million. This quarter, it's not there because the rupee again appreciated from the base. Otherwise, I don't think there is any other plan.

Okay. And just one last thing on the tax rate. So if we look out in the second half of the year to kind of hit the 13.5% to 14.5%, does that mean the tax rate comes down in the second half of the year from the 15% level? V. Balakrishnan: Yes, it has gone up to 15% in the second quarter because the on-site profitability has gone up, because last quarter we had a visa cost coming in; this quarter, we don't have that. It could be normalized in the next two quarters. Probably, it will be somewhere between the 13.5% to 14.5% range.

Is that for the second half of the year or for the year in its entirety? V. Balakrishnan: Both for the second half of the year and the full year.

I see. Very good. Thank you.

Your next question comes from Ashish Thadani with Gilford Securities.

Yes, good evening, nice quarter. Your operating margin was relatively unchanged from a year ago at about 28% despite the 13% rupee appreciation, which would be about 600 basis points impact. Question is where has this 600 basis points been made up and how much more cushion do you see? V. Balakrishnan: No, it has been basically made up from the higher billing rates we had seen. Last quarter, we have seen the billing rates... I mean the first quarter we had seen the billing rates going up by around 1.1%. This quarter again, it went up by 1.9%. The utilization in the beginning was around 73, 74; it has gone up to 78. And we got some benefit on the G&A side because of the scale. So it's a combination of all the three, which helped us to offset the impact of the rupee.

So it's basically these three items, right? These are the three major items that would offset the entire rupee appreciation year-on-year? V. Balakrishnan: You're right. These are the three major items which helped us offset the impact, yes.

And would you have a finer breakdown of how these three, what they were in terms of relative impact? V. Balakrishnan: Well, we can take it offline because last year also we had said what are the levers we use. Probably we can take it offline.

Sure. Okay. Thank you. S. Gopalakrishnan: Thank you all very much. Really appreciate all of you taking time off to interact with us. We look forward to talking to you all during the quarter or at the end of next quarter and have a good day. Thank you.

Ladies and gentlemen, this concludes today's second quarter results conference call for fiscal 2008 for Infosys Technologies. You may now disconnect.