By Dhanya Thoppil
Don Emmert/Agence France-Presse/Getty Images
Given that Cognizant expects revenue in the April-June period to touch at least $1.79 billion, will this period see the company bump Infosys to become the No. 2 largest outsourcer?
Cognizant Technology Solutions Corp. has done a favor to its larger and smaller technology rivals, Infosys Ltd. and Wipro Ltd.
By cutting its outlook for the full year, Cognizant has given weight to their claims that there’s an industry-wide slowdown, meaning that individual companies alone cannot be blamed for their poor performance.
Late Monday, U.S.-listed Cognizant, India’s third largest software exporter by sales, for the first time in several quarters shared concerns already raised by others in the industry that they are facing a slowdown in projects. These projects, which are especially in financial services, are not so critical in nature.
Cognizant, which has most of its offices in India, as a result cut its sales growth outlook for 2012 to at least 20% from 23% previously.
The outlook cut sent the technology index tumbling down as much as 3.7% on the Bombay Stock Exchange. Tata Consultancy Services Ltd. fell 5.5% to 1,204.20 rupees ($22.7), while Infosys lost 1.7% to 2,390.35 rupees and Wipro declined 1.9% to 404.00 rupees in weak Mumbai market that was 1.3% lower.
The outlook cut implies that revenue growth for the industry will continue to decelerate for the second consecutive year through 2012, says CLSA Asia Pacific.
Bangalore-based Infosys and Wipro–the only two companies who give financial guidance–have pegged a marginal sales increase at best for the April-June quarter, blaming slow decision-making by clients in an uncertain economic environment.
Nasdaq- and Mumbai-listed Infosys last month said it expects sales in the year that began in April to grow at 8%-10%, below the view for the outsourcing industry in general.
Infosys has been underperforming expectations over the last several quarters, which analysts say has to do with their reluctance to push hard to secure contracts and with their stringent policy on high-margin growth.
NYSE- and Mumbai-listed Wipro, which is yet to turnaround from a restructuring last year, said its endeavor was to beat the industry’s 11%-14% sales growth outlook this fiscal year.
Cognizant’s outlook Monday surprised analysts. “We underestimated the magnitude of austerity that would occur in discretionary spending,” says Rod Bourgeois, senior analyst with Bernstein Research in a report.
Mr. Bourgeois, who was critical of Infosys’ poor performance in the January-March quarter and of its weak outlook, in April said that “well-positioned firms Cognizant and Accenture likely did not experience substantial demand disruption.”
Cognizant validated Infosys’ commentary on slowdown in discretionary spending, with increased instances of deferred decision-making, CLSA Asia Pacific said.
Until Cognizant announced its results and outlook, Infosys was clearly the outlier among its peers in India. TCS India’s largest outsourcer, clearly stayed ahead of the pack saying it is not facing any demand slowdown, unlike its peers.
With three of the top four outsourcers clamoring about a slowdown, the onus now rests with TCS to prove its case.
Nota bene: Given that Cognizant expects revenue in the April-June period to touch at least $1.79 billion–the best case scenario at Infosys– will this period see the company bump Infosys to become the No. 2 largest outsourcer?
The next quarterly results will hold answers to a lot of questions.
Via: India Real Time