IT major Cognizant, based in Teaneck, US, on Thursday announced a significant realignment in its current operations with plans to cut around 7,000 mid to senior level jobs apart from exiting its content business, expected to impact another 6,000 employees.
The company, which posted largely expected numbers for the third quarter ended September 30, unveiled these steps as part of its '2020 Fit for Growth Plan'. The Nasdaq-listed IT services firm, which competes fiercely with Indian IT services firms such as TCS and Infosys, has close to 200,000 employees located across 13 centres in the country which translates to around 70 per cent of its global headcount.
In the September quarter of 2019, Cognizant's net profit rose 4.1 per cent on year-on-year basis (YoY) to $497 million as compared to $477 million posted in the corresponding period of previous year. On a sequential basis, net profit declined by 2.4 per cent.
For the September quarter, revenues stood at $4.25 billion, a growth of 4.2 per cent YoY and 2.65 per cent when compared with the preceding quarter. In constant currency terms, revenues rose 5.1 per cent over the same period last year. Digital revenue growth came in the mid-20 per cent range in the third quarter and represented 35 per cent of the company’s total revenue.
For the whole year, Cognizant increased the lower end of its revenue guidance and said it was expecting its revenues to grow at 4.6-4.9 per cent in constant currency terms in 2019 as against its previous guidance of 3.9-4.9 per cent.
As part of its restructuring, Cognizant said it would remove 10,000-12,000 mid-to-senior employees from their current roles, and re-skill and redeploy about 5,000 of those impacted. Thus, the IT firm is likely to witness a net reduction of around 5,000 to 7,000 employees, either through attrition or role elimination. This accounts for around two per cent of its total employee base.
"Today, we are announcing a simplification of our operating model and a cost reduction programme, which will allow us to fund investments in growth. Looking ahead, we see a clear path to unlock the organization's full growth potential, win in our key digital battlegrounds, and return Cognizant to its historical position of being the bellwether of the IT services industry," said Brian Humphries, CEO, Cognizant.
Cognizant will also exit its content moderation business for clients such as Facebook, which will impact around 6,000 employees. "Exiting this area will impact an additional approximately 6,000 roles worldwide, though the company intends to work with its partners to explore ways to transition the roles to alternative vendors, thereby reducing the impact on associates," the IT firm said.
The exit from content moderation business would result in an annualised revenue loss of $240-$270 million for the company and impact its communication & media vertical.
However, Cognizant noted that all these business realignment moves would lead to significant cost savings for the firm next year. "The optimization of our cost structure is expected to be substantially complete by the end of 2020 and result in total charges of approximately $150-200 million primarily related to severance and facility exit costs," the company said. "This is expected to result in an annualized gross savings run rate of around $500-550 million in 2021."
In the September quarter, operating margin of the IT services firm expanded by 80 basis points in sequential term to 15.7 per cent. However, margin declined by 270 basis points on YoY basis.
Among business verticals, Cognizant reported a 1.9 per cent YoY growth in its financial services segment, which accounted for more than 35 per cent of its revenues. Revenue from healthcare, another key vertical, dropped 0.9 per cent during this period. Communications, media & technology vertical contributing 14.5 per cent of the company’s total revenues grew 10.6 per cent in constant currency on YoY basis.
In the just ended quarter, Cognizant’s employee attrition rate stood at 24 per cent, a rise of 100 basis points over the last quarter and 200 basis points over the same period of last year. Total headcount of the company rose 1,700 on net basis and stood at 289,900 by the end of September quarter.
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