Cognizant has predicted a drop in revenue for 2023, highlighting the difficulties facing the IT services sector, which sees the majority of its income come from the United States. In addition, the firm, which once served as an indicator of market expansion, will eliminate 3,500 jobs and vacate millions of square feet of office space in an effort to reduce expenses.
These are just some of the initiatives announced by the company’s new chief executive officer, Ravi Kumar S, who has been tasked with revitalizing the Nasdaq-listed IT giant in order to better compete with firms like Accenture, TCS, and Infosys. The corporation is publicly traded on US stock exchanges, yet its primary operations are located in India.
For the full year, Cognizant predicted revenue of $19.2 billion to $19.6 billion, a decrease of 1.2% to 0.8% in reported terms and an increase of 1% to 1% in constant currency. Revenue projections for the second quarter were $4.83–$4.88 billion, a decrease of 1.6% to 0.6% (or a loss of 1% to flat in constant currency).
Cognizant’s margins are 14.6%, making it one of the lowest in the IT industry alongside Tech Mahindra. The company has projected an adjusted operating margin of 14.2–14.7 percent for the whole year.
First quarter FY23 results exceeded expectations, marking the first full quarter of management under Kumar’s watch. After former CEO Brian Humphries was “involuntarily terminated,” he was named interim CEO on January 12. The industry as a whole is facing a number of headwinds, and the company’s leadership and chairman of the board shift coincides with this.
Cognizant’s net profit increased by 3% year-over-year, totaling $580 million. Profits jumped by 11.2% from one period to the next. Revenue for the company totaled $4.81 billion, down 0.3% year over year but up 1.5% in constant currency, exceeding the company’s target of $4.71 to $4.76 billion.
High-volume Orders and Reservations
On a trailing twelve-month basis, the company’s quarterly bookings were $25.6 billion, up from $24.1 billion in Q4FY22.
“Our accelerated bookings growth in the quarter, which included several large deals and a healthy mix of new and expansion work,” said CEO Kumar in a statement.
Kumar, who stated last quarter that he would meet with 100 clients in 100 days and that he would also keep an eye on the company’s biggest projects, has made it clear that this is a top priority. Cognizant lost ground in strategic verticals during his predecessor’s watch, and the company has since had to make up ground by winning back clients’ trust and resuming negotiations on previously abandoned significant agreements. This poor performance over a number of years is what ultimately led to Humphries’ dismissal.
According to Kumar’s presentation to investors, the firm’s “renewed strength in bookings momentum” is compensating for a weaker backlog from the prior nine months, and the firm will be able to show increased growth by the year’s end as well as in the next year.
Cognizant was not immune to the crisis in the banking and financial services sector, which has affected all major IT players. According to the CEO, internal operational difficulties at financial institutions have decreased significantly.
Softer discretionary spending and decision delays among current and potential customers are also having an effect. We have noticed an uptick in the deal pipeline and the majority of our banking clients in the United States are huge institutions. He continued, “Overall, we’ve seen early green shoots that we’re moving this portfolio in the right direction while navigating the macro dynamics,” adding that they will be keeping an eye on the situation.
Building commercial momentum is dependent on closing major deals that are in line with our risk appetite, and our pipeline of large deals looks solid for the next couple of quarters. However, it may take some time for them to become profitable. To help with the successful completion of big deals, we are aiming to improve and industrialize our deliveries, he continued.
Kumar told investors and analysts that the first quarter saw a significant increase in the number of acquisitions worth more than $100 million for the company, from zero in Q1 2017 to four this year.
The company’s chief financial officer, Jan Siegmund, said that weaker discretionary spending brought on by the macro climate has put pressure on smaller contracts. He noted that the current economic climate will have an immediate effect on the company’s revenue in the second quarter.
Layoffs
Kumar had it on his list of priorities for the previous quarter to increase operating discipline, which will have an effect on 3,500 positions. Cognizant’s layoffs come on the heels of Accenture’s announcement of 19,000 layoffs.
Cognizant stated that the decision was made as part of its NextGen program, which aims to streamline the business and improve efficiency.
As part of our push toward simplification, we plan to operate with fewer layers so that we can be more nimble and make decisions more quickly. In a statement, the firm explained that it planned to reinvest the program’s savings in “continued investments in our people, revenue growth opportunities, and the modernization of office space.” As a result, 3,500 employees will be affected, according to the corporation.
Severance and other expenditures for employees would cost the company $200 million, most of which is expected to be incurred in 2023 and is “primarily related to nonbillable and corporate personnel,” the company stated.
They are also considering “consolidating and realigning office space to reflect the post-pandemic hybrid work environment.” By 2025, compared to 2022, Cognizant hopes to save $100 million on real estate.
The business noted that “investments to expand our real estate footprint in smaller cities, primarily in India, in support of our hybrid work strategy” contributed to the reduction in real estate expenditures. The business is also considering relocating workers closer to the headquarters.
People
When comparing Q1FY23 to Q4FY22, Cognizant lost 3,800 employees, bringing the overall number of workers on staff down to 3,51,500. The corporation has modified the statistic it reports on from the previously reported involuntary attrition rates.
The trailing twelve-month rate of voluntary turnover is at 23%, down from 26% in the previous quarter. Employees in the company’s Intuitive Operations and Automation practice are not included in this number.
This is in line with the CEO’s statement from the previous quarter that the company wants to become an attractive place to work.
Early this month, the majority of employees received their third compensation increase in the past 18 months from the corporation.
Kumar claims the corporation has made “career progression easier” by streamlining internal job postings and reworking the promotion system.
AI that can generate new content
To paraphrase Kumar, “recent breakthroughs in generative AI offer the potential to fundamentally transform our client’s businesses and increase our own productivity.” This is consistent with the claims made by other Indian tech firms, like Cognizant.
The company claims it is increasing its spending in this area and is helping its customers determine which AI applications are most important to them. “We’ve conducted ideation sessions with over 30 clients and are now working to industrialise solutions to the common challenges,” added Kumar.
We predict that generative AI will significantly alter the technology services sector by increasing productivity and elevating the profile of software and data engineering professionals. We are utilizing AI to boost our own innovation and efficiency. With the ultimate aim of doubling associate productivity, we are running pilots that leverage generative AI to speed up consulting, design, engineering, and operations,” he continued.
The usage of new IT operations, he claims, can cut down on operational costs by 25–45 percent, mean to delivery and detech by 30–50 percent, and FTEs (full-time equivalents) by 15–30 percent.
Network Hype Team