Cognizant said that delays in project fulfilment with delivery and reduced client demand primarily in the travel and hospitality industries has affected its business.

Cognizant withdraws revenue guidance for 2020 What it means for Indias IT sector
Atom IT Thursday, April 09, 2020 - 17:25

In a surprising move, IT solutions firm Cognizant Technology Solutions has withdrawn its 2020 revenue guidance (growth forecast), citing the unprecedented nature of the COVID-19 pandemic and the uncertainty around its duration and impact on the company’s ability to forecast performance.

In February 2020, the company had forecast a revenue growth of 2-4% in constant currency terms for 2020. 

The company said in a statement that while its financial performance in the first two months of the quarter was on track to exceed previous guidance, driven by strong performance from the North America market, there have been delays in project fulfilment with delivery, particularly after India and the Philippines shifted to work-from-home.

It also said that reduced client demand, primarily in the travel and hospitality industries, has affected Cognizant’s business.

Entering the second quarter, Cognizant expects the pandemic to further reduce client demand as its societal and economic impact causes broader disruptions across industries.

What this means for the IT industry

This comes after Accenture, on March 20, lowered its revenue forecast for FY20 to 3-6% as against the earlier guidance of 6-8%.

This, followed by Cognizant withdrawing its revenue guidance, does not bode well for India’s IT majors such as TCS and Infosys, as it indicates that clients are cutting down on their spending. And Indian IT companies have a chunk of their revenue coming from clients based out of the US and European countries.

An analysis by International Data Corporation (IDC) states that hardware businesses will take the biggest hit, and this is likely to affect the IT and ITeS industry across the world. With several companies, especially in the aviation, retail, hospitality business taking pay cuts, a possible slowdown in the IT industry brings about fear of layoffs and pay cuts in the near future for the industry that employs millions in India.

In the first quarter, however, Cognizant has said that it expects the first quarter revenue to be $4.22-$4.23 billion, up 2.7-2.9% (3.4-3.6% in constant currency) from the same quarter last year, including a negative 50 basis point impact from the exit of certain content services.

Cognizant also announced recently that all employees at the associate level and below at the company will be receiving 25% of their base salary as an additional payment to their current paycheck for the month of April. This is two-thirds of the company’s employees.

The IT services giant said that this will be reviewed monthly, and the additional payment will be processed along with April’s salary for employees in India and the Philippines. Just like India’s national lockdown, the Philippines is in a state of emergency to contain the spread of coronavirus.

Cognizant, however, says that it has proactively taken steps to strengthen its financial flexibility, including drawing down $1.74 billion on its revolving credit facility on March 23, 2020, bringing the company's total cash and investment balance as of March 31 to approximately $4.7 billion, or net cash of $2.2 billion. The company has no significant debt maturities until 2023.

"In this fluid environment where uncertainty prevails, we are well-positioned with deep client relationships across more than a dozen industries, and a strong balance sheet that provides solid financial flexibility. As ever, we stand committed to help our clients manage through economic, technological and other disruptions through our innovative solutions and talented associates," Brian Humphries, Chief Executive Officer, said in a statement.

"I am proud of our 292,000 associates who have risen to the challenge of serving our clients with empathy, initiative and courage, and confident that we will emerge from this global crisis stronger together,” he added.

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