Cognizant braces for slow year ahead, to cut 3,500 jobs and slash office spaces

• Cognizant’s March quarter net profit for March quarter grew 3% on year to $580 million.
• Meanwhile, its revenue declined 0.3% on year to $4.8 billion during the quarter.
• Adding to the woes, Cognizant says full year guidance of 2023 is expected to be $19.2 - $19.6 billion, which would mean a decline of 1.2%.
• Cognizant reported an operating margin of 14.6% for March quarter, which is lower than Indian IT giants TCS, Infosys, HCL Technologies and Tech Mahindra.

The trend of weak quarterly numbers continued for IT services companies and the latest one to disappoint the markets is Cognizant. The company also announced that it would layoff 3500 employees as it sees revenues slowing further in 2023. The Nasdaq-listed company’s March quarter net profit grew 3% on year to $580 million. Meanwhile, its revenue declined 0.3% on year to $4.8 billion during the quarter.

The company follows a January to December accounting year.

Adding to the woes, Cognizant says full year guidance of 2023 is expected to be $19.2 - $19.6 billion, which would mean a decline of 1.2%.

The next quarter revenue is expected to be at $4.83 - $4.88 billion, showing a decline of 0.6% to 1.6%, or a decline of 1.0% to flat in constant currency.

Cognizant reported an operating margin of 14.6% for March quarter, which is lower than Indian IT giants TCS, Infosys, HCL Technologies and Tech Mahindra.

For the full year 2023, the company has guided for adjusted operating margin to be in the range of 14.2%-14.7%.

Following the peer IT major’s mixed bag of earnings which expects a decline in 2023 revenues, shares of most Indian IT companies were trading lower. Indian companies monitor Cognizant’s earnings as the company is listed in the US but a majority of its operations are based in India.

Source: NSE

Moreover, the company informed investors that it will be laying off 3,500 employees and also reduce office space as part of the cost cutting measures.

It attributed the move to its NextGen program through which it expects to simplify its operating model and optimise corporate functions.

“In the second quarter of 2023, we initiated the NextGen program aimed at simplifying our operating model, optimizing corporate functions and consolidating and realigning office space to reflect the post-pandemic hybrid work environment.

Our drive for simplification will include operating with fewer layers in an effort to enhance agility and enable faster decision making,” the company said in a statement.

Cognizant has a total headcount of 3.51 lakh in the March quarter, which is a decrease of 3,800 from the previous quarter. Its voluntary attrition rate declined to 23% in Q1 FY23 from 30% in Q1 FY22.

"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. I am also encouraged by the continuing reduction in our voluntary attrition," said Ravi Kumar S, CEO at Cognizant.

“Having spent more than three months assessing the business, meeting with over a hundred clients and thousands of employees, I firmly believe Cognizant has a strong foundation for accelerating growth," said Kumar S in a statement.

This was the first quarter for new CEO Ravi Kumar S who assumed control on January 12 following the "involuntary termination" of former CEO Brian Humphries at a time when the industry is facing several challenges.

$NIFTYIT.NSE Cmp- 27836Nifty IT index made Dragonfly doji on weekly chart, RSI divergence on chart,The IT index bounces from multiple support zones, we may see Target of 28824 in upcoming days.As we look into the $CTSH (Cognizant)ResultThe company's revenue declined 0.3% year on year to $4.81 billion for the three-month period that ended in March, beating Street estimates of $4.74 billion. Revenue was down 0.7% while profit rose 11.3% on a sequential basis.On the operational front, the operating margin fell 40 bps year on year to 14.6%. This was mainly driven by higher operating expenses.But Indian IT sector looking strong for short to mid termFew of Indian IT sector i am looking for good growth in upcoming days$TCS.NSE $INFY.NSE $HCLTECH.NSE

— (@KhapreVishal) May 04, 2023

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