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Infosys Must Overcome Margin Pressure

NEW YORK ( TheStreet) -- Given the weaker-than-expected results we've seen in hardware and software companies such as  Oracle (ORCL) and Cisco  (CSCO), there's no question that robust IT enterprise spending still remains "right around the corner." And this constant waiting game makes it increasingly difficult to value companies like Infosys (INFY - Get Report) that rely on an even weaker spending environment in IT consulting.

Fearing that this industry is still ways away from returning to its once-robust levels, the Street has already punished larger rivals like IBM (IBM) and to a lesser extent Accenture (ACN). While I've always believed in this industry, my concern is that Infosys, despite being better managed, would find it increasingly challenging to maintain the portion of the market that it currently has.

[Read: Cold? Blame Global Warming]

On Friday,Infosys will report its first quarter results. Although the Street seems a bit more optimistic, with projections of 9.2% revenue growth, it's hard for me to get excited about the company's earnings projections, expected to be a penny lower than last year. And I have to believe that the company's margins might be a big reason for the expected decline.

We can always blame macro weakness for any downbeat results in the overall consulting space. But Infosys management has made some questionable decisions that has caused me to rethink the company's prospects. Perhaps the company's market position might not be as strong as the Street believes it to be.

For instance, unlike Accenture and Cognizant (CTSH), Infosys management have been more "reactive" than proactive. I don't believe the company has responded quickly or adequately enough to the changing market. Plus, I believe their failure to unhinge the company from the discretionary spending environment, which is always in flux, has set the company back against both Accenture and Cognizant.

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