Recently, Cognizant revealed that its revenues will decline in 2023, underscoring the pain in the IT services industry, which derives a majority of its revenues from the US.
Cognizant Announces Major Layoffs
As we know, this software giant, considered to be a barometer of industry growth many years ago.
But now, it will lay off 3,500 employees and also give up millions of square feet in office space to save costs.
These concerns were unveiled by newly appointed CEO Ravi Kumar S as he faces an uphill task in reviving the Nasdaq-listed IT major, which competes with the likes of Accenture, TCS and Infosys.
It appears that a majority of its operations are based in India as the company is listed in the US.
Lowest Margins In Industry
When it comes to revenue, the company provided a revenue guidance of $19.2 – $19.6 billion, or -1.2 percent to 0.8 percent in reported terms, or -1 to 1 percent growth in constant currency for the full year.
For the second quarter, it guided for a revenue band of $4.83 – $4.88 billion, -1.6 percent to -0.6 percent, or a decline of 1 percent to flat in constant currency.
At 14.6 percent, Cognizant’s margins are among the lowest in the IT industry, comparable to Tech Mahindra.
Further, the company has guided for adjusted operating margin to be in the range of 14.2-14.7 percent for the full year.
Change In Game
The company beat analyst expectations in what is the first quarter where Kumar oversaw most of the period for the first quarter of FY23.
In a surprise announcement, he took over on January 12 as CEO after former CEO Brian Humphries was “involuntarily terminated”.
It seems that the change in the company’s leadership and chairman of the board comes at a challenging time for the industry which is facing several headwinds.
The IT service service provider reported a 3 percent increase in net profit on a year-on-year basis at $580 million and profits increased by 11.2 percent.
Cognizant witnessed its revenue come in at $4.81 billion, a decline of 0.3 percent year-over-year.
It grew 1.5 percent in constant currency, beating its guidance of where it expected revenue to be in the range of $4.71-$4.76 billion.
When it comes to the company’s bookings for the quarter, it stood at $25.6 billion on a trailing-twelve-month basis, up from $24.1 billion in Q4FY22.
In a statement, CEO Kumar said,“Our accelerated bookings growth in the quarter, which included several large deals and a healthy mix of new and expansion work, reflects the strengths of our services, our brand, and the longstanding relationships we have with our clients,”.
It holds significance as Kumar met over 100 clients in 100 days as he said last quarter, at which time he said he would also monitor large deals which helped in strengthening the company’s ability to win large deals was one of his key priorities.
Prior to this, the company seems to have stayed away from participating in large deals as it saw extremely high levels of attrition.
