Cognizant to lay off 3,500 employees as Q1 net profit up 3% YoY

Cognizant has announced that its revenues are expected to decline in 2023. This highlights the current struggles faced by the industry, particularly as the majority of its revenues come from the US. To combat this, Cognizant will lay off 3,500 employees and give up millions of square feet of office space to save costs.

"In the second quarter of 2023, we initiated the NextGen program aimed at simplifying our operating model, optimizing corporate functions and consolidating and realigning office space to reflect the post-pandemic hybrid work environment. The NextGen program is expected to impact approximately 3,500 employees or approximately 1 per cent of our global workforce and will primarily be non-billable and corporate personnel," the company said in a statement.

Newly appointed CEO Ravi Kumar S faces a daunting task in turning the company around and competing with industry giants such as Accenture, TCS and Infosys. While the company is listed in the US, the majority of its operations are based in India.

Cognizant has provided revenue guidance of $19.2 - $19.6 billion for the full year, or a decline of 1.2 per cent to a growth of 0.8 per cent, or a decline of 1.0 per cent to a growth of 1.0 per cent in constant currency. For the second quarter, the company has predicted a revenue band of $4.83 - $4.88 billion, which is a decline of -1.6 per cent to -0.6 per cent, or a decline of 1 per cent to flat in constant currency.

Cognizant's margins currently stand at 14.6 per cent, which is comparable to Tech Mahindra, and is among the lowest in the IT industry. For the full year, the company has predicted an adjusted operating margin to be in the range of 14.2-14.7 per cent.

In the first quarter of FY23, Cognizant beat analyst expectations, which is the first quarter where Kumar oversaw most of the period. He took over as CEO on January 12 after former CEO Brian Humphries was "involuntarily terminated". The change in leadership and chairman of the board comes at a challenging time for the industry, which is facing several headwinds.

Cognizant reported a 3 per cent increase in net profit on a year-on-year basis, with profits increasing by 11.2 per cent sequentially. The company's revenue came in at $4.81 billion, a decline of 0.3 per cent year-over-year, or a growth of 1.5 per cent in constant currency. This beat its guidance, which predicted revenue to be in the range of $4.71-$4.76 billion.

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