Once a growth darling and a play on the rise of outsourcing, Infosys (Nasdaq:INFY) has had a rougher go of it over the past few years an strategic missteps compromised the company's growth and market share. More recently, investors have cheered the return of NR Narayana Murthy to the company as executive chairman and the vision he laid out for a return to success based around improving employee morale/performance and better appreciating the actual needs of customers. It's much too soon for any of that to make a major difference, but Infosys's strong first fiscal quarter results are a positive step all the same. If nothing else, it does show that the company is not so far behind that it can't still win deals and deliver good results. While the shares have already bounced about 20% off of a recent low, a fair value in the mid-$50s gives investors a reason to hang on for a little while longer. Surprising Fiscal First Quarter ResultsInfosys surprised the Street with its fiscal first quarter numbers, and for once it was a positive surprise as the company saw solid wins and client additions, good volume, and stability in margins. Revenue rose 17% as reported in rupees, or about 14% as reported in dollars. Volume increased about 4% on a sequential basis (against 8% overall sequential revenue growth), and the company added 66 new clients (bringing the total of active clients to 836). Not unlike Accenture (NYSE:ACN), growth was strong in the U.S., with a 5% sequential improvement, and the financial services and manufacturing verticals both showed sequential growth. SEE: 5 Earnings Season Investing Tips

Margin improvement is still a work in progress. Gross margin fell more than four points from last year, but stayed flat on a sequential basis. Operating earnings fell 1% in rupees and 4% in U.S. dollars, but both figures were up sequentially (8% and 2%). Outsourcing Good, Higher-Value Consulting Maybe Not So GoodWhile the reaction to Infosys's results has been considerably more positive than the reaction to Accenture's, the underlying trends do seem consistent. Outsourcing was the stronger business for Accenture in its fiscal third quarter (ended May), with revenue up 7% in constant currency against the flat consulting business. Likewise, outsourcing bookings were quite strong while consulting was weak. All things considered, then, this should be an encouraging number for Infosys peers like Cognizant (Nasdaq:CTSH) and Tata. I'm not quite so sure what this says for companies like IBM (NYSE: IBM), Xerox (NYSE:XRX), and Computer Sciences (NYSE:CSC). Odds are that there is still pressure in the higher-value, faster-turning consulting sectors, and that could lead to another mixed result for IBM. Can Infosys Change Enough To Be A Leader Again?Much as investors were pleased to see the return of Mr. Murthy, I have my doubts about the long-term benefits of the move. The history of former leaders returning to their post is spotty – for every Apple (Nasdaq:AAPL) success story, there are at least two Dell (Nasdaq:DELL) stories where the second coming disappoints. That said, the plan laid out recently at the annual shareholder meeting is a credible one. An immediate wage hike for employees should improve morale and reduce attrition of quality workers, and that should ultimately be good for margins (paying them more hurts margins, but having to constantly higher and train new workers hurts even more). Likewise, approaching clients to figure out how they can better serve their needs is a common sense move that should pay off in better retention. Even so, there are reasons to be skeptical. IBM and Accenture have largely cloned Infosys's offshore leverage and rivals like Tata and Cognizant outmaneuvered Infosys in markets like remote infrastructure management. So even if Mr. Murthy's ideas are sound, the history of turnarounds in the IT services space is spotty at best, and this isn't a market like the consumer market where a few clever product introductions (like the iPod/iPhone) can make a big difference right away. SEE: A Look At Corporate Profit MarginsThe Bottom LineI was positive on Infosys three months ago (with some caveats), and I still am. I believe the company can produce long-term growth around 10%, and that's good for a price target in the $50s. My concern, though, is that the company's decision to go elephant hunting (that is, targeting large deals) is going to lead to a lot of quarter-to-quarter volatility, and I think there's a reasonable chance Infosys will stumble in the next quarter or two. Even so, for investors who can live with some ups and downs along the way, I think these shares still offer reasonable potential.

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