Is Cognizant facing more pressure due to IT services market fluctuations?

Cognizant Technology CEO Francisco D’souza says he’s disappointed in its revised revenue outlook for the year.

But he believes that the market opportunity remains strong and Cognizant is well positioned to capture a disproportionate share of the growth in the market over the coming years.

He supports his statement with a new report by ISG, a sourcing advisory group that said that demand in the market is at record high levels.

“This is also reflected in our strong order pipeline. As part of our recent quarterly management meeting, our global leadership team assembled to take stock and review area of the focus in view of our revised guidance for the year. Post these discussions, it’s clear to us that we have the right strategy, and we remain confident in the long-term outlook of our business,” D’souza added.

Cognizant competes with TCS, Wipro, Infosys, HCL Technologies, etc. The IT services market did not hear anything wrong from these rivals till now.

Cognizant CEO says the revision in revenue growth target is due to weaknesses in certain clients and longer-than-expected sale cycles for certain large integrated deals.

The company, despite huge pressure, will still grow at least 14 percent in 2014.

There are 2 main reasons for this revised guidance.

“First, we are seeing a trend in the market towards larger integrated deals. While these deals represent a strong source of revenue for Cognizant, certain deals took longer than expected to close, leading to delays in revenue ramp-up,” D’souza said.

Second, Cognizant continues to experience weakness in certain clients in North America and the U.K. that recently underwent leadership changes.

Francisco D'Souza, CEO of Cognizant Technology

Cognizant performance

Cognizant said its Banking and Financial Services segment grew 3.4 percent sequentially and 16.2 percent year-over-year, driven primarily by strength in insurance, where there is a growing focus on end-to-end managed services.

“Growth in health care was 4 percent sequentially and 19.2 percent year-over-year,” said Gordon J Coburn, president, Cognizant Technology Solutions.

Cognizant said retail manufacturing segment was relatively flat sequentially and up 11.4 percent year-over-year. In retail, continued pressure on discretionary spending among major clients has driven much of this softness in the quarter.

Communications, information, media and entertainment and high tech posted 10.4 percent sequential growth and 20.8 percent year-over-year, driven by increased traction with both communications and high technology companies.

North America business grew 5 percent sequentially and 15 percent year-over-year.

Revenue from Europe declined 1 percent sequentially and grew 20.4 percent year-over-year.

Continental Europe posted 4 percent sequential growth and 30.5 percent growth year-over-year.

The rest of world increased 5.5 percent sequentially and 26.6 percent year-over-year.

Cognizant said consulting and technology services and outsourcing services represented 52 percent and 48 percent of revenue. Consulting and technology services increased 6.2 percent sequentially and 20.9 percent year-over-year. Outsourcing services increased 1.5 percent sequentially and 11.9 percent from Q2 a year ago.

Baburajan K
[email protected]

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