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

The Economic Times - - Companies: Pursuit Of Profit - Jochelle.Men­donca @times­

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

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