$10 Billion Dollar Company

Cognizant's March in to $10 Billion Dollar 

Club

The Teaneck, New Jersey-based Cognizant on Wednesday said its quarterly revenues for April-June period rose to $2.52 billion, in line with analyst expectations, up 16.5% from a year-ago period and 3.9% sequentially, joining the $10 billion a year run-rate club. GAAP net income was up 23.8% at $372 million and 6.6% sequentially. The company lowered its guidance for the remaining period, sending its stock prices crashing.

Cognizant, which employs more than three-fourths of its employees in India, said its growth could slow down than previous forecast due to weakness at some clients and delays in order booking. Cognizant shares fell 16% to $42.19 in NASDAQ in early trades, after declining as much as 17% for the biggest intra-day drop since May 2012. The stock had declined 1% this year through Tuesday. "Clients aren't spending as much as we expected on projects as we were anticipating," Gordon Coburn, president of Cognizant, said on the second-quarter earnings conference call.

The company cut its revenue growth forecast for the year to at least 14% from earlier 16.5%, slowest ever in its 20 year history. Its latest full-year guidance could result in revenues of at least $10.1 billion, achieving a significant milestone. Analysts were expecting full-year revenue of $10.34 billion, according to Thomson Reuters. Cognizant also forecast July-September quarter revenues to range between $2.55 billion and $2.58 billion, again lower than analyst estimates of nearly $2.66 billion.

"Due to weakness at certain clients and longer than anticipated sales cycles for certain large integrated deals, we are adopting a more conservative stance for the remainder of the year," Francisco D'Souza, CEO of Cognizant, said in a statement.

It said that it has signed three transformational engagements totalling $3.5 billion in contract value, including a letter of intent with Health Net for a seven-year deal. The deal is expected to represent approximately $2.7 billion in total contract value, the largest in Cognizant's history, a company statement said.

Operating margins were at 21%, higher than the company's targeted 19-20% range. This, however, lags its comparable Indian peers who have higher operating margins. For example: TCS's margins are 26.1% while that of Infosys are 25.1%. Revenues from North America rose 15%, accounting for about 77% of all revenues. The EU region contributed to 20.4% of revenues.

Consulting and technology services contributed to 52% of revenues and grew 6.2% sequentially while outsourcing services 48% of revenues and grew 1.5% sequentially. "As expected, overall pricing was stable during the quarter, said Karen McLoughlin, CFO, Cognizant

The company said it added 8800 persons (net), its highest since Q3 2011, in a quarter where its comparable peers recruited fewer people. "Around 34% of gross additions for the quarter were direct college hires, while 64% were lateral hires of experienced professionals. We ended the quarter with approximately 187,400 employees globally. Annualized attrition levels at Cognizant was 16.9% during the quarter-including BPO and trainees-down by almost 200 basis points from the year ago period.

Cognizant also said it expanded its stock repurchase program from $1.5 billion to $2 billion.

Wipro's gives Salary Hike

Wipro's gives 16% salary raise to its employees

Wipro has rewarded nearly one in five employees with a 16% salary increase, a move India's third-largest software company believes will help it retain its best-performing employees as overall attrition rates increased during the first quarter of the year.

Starting June 1, the average pay-raise for those working at client locations onsite was 2% while it was an average 8% for the rest. But the top 20% among its 1,47,500 employees were rewarded with twice the average increase.

"One thinking when we did the salary increases this year was to do a 'differentiated salary' increase. So we gave more to high performers," said Saurabh Govil, head of human resources.

"We have done it in the past but this year differentiation has been sharper." Some experts believe that Wipro's decision to reward employees whose skills are in demand, including those with expertise in big data and analytics, could become a more secular trend in an industry that is battling high attrition.

"I believe every company will start looking at attrition rates closely and reward them according to the skill sets it needs," said Ian Marriott, VP at Gartner Research.

Wipro saw an increase in attrition to 17% for the three months which ended in June as against 15.7% during the end of the January-March period. Both Infosys and Mumbai-based Tata Consultancy Services, too, saw an uptick in attrition for the first quarter ended June, with Infosys reporting attrition rate of close to 20% while at TCS it was 12%.

"Early trends after the salary increases show that there is clearly a dip in attrition for the high performers," Govil told ET in an interview. "And today, it is lower than the company average and this is clearly good news because everyone would want high performers to stay with the company. But then, I should say it's early days and let's wait for a little time."

For IT companies, the first quarter usually results in an increase in quarterly annualised attrition as more employees leave to pursue further education. But many companies are getting jumpy about losing engineers with what it believes are hot skills and hence, trying different measures to retain them. Infosys has decided to do away with the variable pay component for entry-level employees as it believes it will motivate more employees to stay with the company.

On the flip side, rising wages have also cut into operating margins. The pay raises and stock options to some employees at Wipro hit operating margins by 150 basis points during the quarter.