Cognizant’s Revenue Forecast Brings Hope for Troubled IT
IT firm raises 2017 revenue growth outlook to 9-10%; posts $470 million net income in Q2
Bengaluru: Cognizant has forecast a marginal increase in revenue for the current year providing a sliver of hope for an industry grappling with slowing growth. The technology outsourcing company axed over 4,000 jobs in the previous quarter — highest amongst industry peers — indicating the challenges ahead for software engineers as the threat of automation and rising protectionism looms large over the sector.
Cognizant said it expects revenue growth of 9-10% in 2017, it had previously forecast growth of 810% for the year. In the third quarter, the Teaneck-New Jersey headquartered company expects to grow at a rate of 1.6 to 3%. In the second-quarter, it reported revenue of $3.67 billion, up 3.5% from the first quarter. Net income stood at $470 million.“Cognizant delivered strong second-quarter results, which reflect our continued progress in helping clients achieve
the value of digitising their entire enterprises, or what we call being digital at scale,” CEO Francisco D'Souza said in a statement.“We remain dedicated to accelerating our shift to digital services and so- lutions as we continue to invest in our core business and execute our margin improvement and capital return programs,” he added. The company employed 256,800 people at the end of June, down from 261,200 at the end of March. Competitors like Tata Consultancy Services, Infosys and Tech Mahindra also reported lower headcount numbers in the same period, while Wipro and HCL Technologies both added jobs.
Cognizant had offered a voluntary separation scheme to senior employees and was letting go of over 5000 employees as part of its annual appraisal process, ET has previously reported. About 400 employees signed up for the voluntary separation scheme, the company said. “We had about $39 million in charges this quarter, mostly related to severance...I would not expect the headcount to decline from here. It is at its low point, at least for 2017,” Karen McLoughlin the chief financial officer of Cognizant on a post-earnings conference call. She added that the company would continue to manage its headcount but that it would now hire for critical skills. Gross hiring in the quarter stood at 10,800 she said. Cognizant’s forecast of higher revenue growth is a positive sign for the industry at large, although the outlook is not completely comparable. Cognizant provides guidance for the calendar year and in reported currency.
The National Association of Software and Services Companies expects the Indian IT industry to grow between 7-8% in constant currency in fiscal 2018. Analysts said that, more quarters of consistent execution was needed.“While revenue was just a touch above consensus (EPS beat more meaningfully), we think that another quarter of consistent execution could further help to improve valuation,” David Koning, analyst with RW Baird, said in a note.
FRANCISCO D'SOUZA CEO, Cognizant We remain dedicated to accelerating our shift to digital services as we continue to invest in our core business