Cognizant plans to remove around 7,000 mid- to senior-level jobs and shut down its content moderation business, further impacting 6,000 jobs, as part of its ‘2020 Fit for Growth Plan’. The Nasdaq-listed IT services firm also posted largely in-line numbers for the July-September quarter on Thursday.
The firm, which competes with TCS and Infosys, has close to 70 per cent of its global headcount in India (200,000 employees across 13 centres). The Teaneck-headquartered firm has not yet spelt out the impact of these moves on its India headcount, leaving its employee base here anxious.
Forum for IT Employees (FITE), a self-proclaimed union for those working in the IT sector, meanwhile, has asked the firm to stop all lay-offs immediately.
In Q3 of 2019, Cognizant’s net profit rose 4.1 per cent on year-on-year (YoY) basis at $497 million as compared to $477 million posted in the same period of the previous year. On sequential terms, net profit declined by 2.4 per cent. For Q2, revenue stood at $4.25 billion, up 4.2 per cent on a YoY basis and 2.65 per cent when compared with the preceding quarter. In constant currency terms, revenue rose 5.1 per cent over the same period of last year. Digital revenue growth came in the mid-20 per cent range in the third quarter and represented 35 per cent of the company’s total revenue.
For the whole year, Cognizant increased the lower end of its revenue guidance and said it was expecting its revenue to grow at 4.6-4.9 per cent in constant currency terms in 2019 as against its previous guidance of 3.9-4.9 per cent. Cognizant said it would remove 10,000-12,000 mid- to senior-level staff and re-skill and redeploy about 5,000 of those impacted. Thus, the IT firm is likely to witness a net reduction of 5,000-7,000 employees, either through attrition or role elimination. This accounts for around 2 per cent of its total employee base.
A senior associate-level employee from Cognizant’s Siruseri centre in Bengaluru said: “The management will be targeting the mid to senior level employees, who are of more than 10 years of experience, while the freshers will be provided with all the works. With this level of experience, it would be difficult for us to get a job outside.” Those who lost their jobs last year and even prior to that, had to suffer for several months while many joined other companies in lower salary levels and even on contract basis, the person said.
Brian Humphries, chief executive, Cognizant, said, “Today, we are announcing a simplification of our operating model and a cost reduction programme, which will allow us to fund investments in growth. Looking ahead, we see a clear path to unlock the organisation’s full growth potential, win in our key digital battlegrounds, and return Cognizant to its historical position of being the bellwether of the IT services industry.”
On exiting the content moderation business for clients such as Facebook, the firm said, “Exiting this area will impact an additional approximately 6,000 roles worldwide, though the company intends to work with its partners to explore ways to transition the roles to alternative vendors, thereby reducing the impact on associates.”
The exit from content moderation business would result in revenue loss of $240-270 million annually.
Cognizant hoped these moves would lead to significant cost savings. “The optimisation is expected to be complete by the end of 2020 and result in total charges of $150-200 million primarily related to severance and facility exit costs,” the company said. “This is expected to result in an annualised gross savings run rate of $500-550 million in 2021.”
In the September quarter, operating margin of the IT services firm expanded by 80 basis points in sequential term to 15.7 per cent. However, margin declined by 270 basis points on YoY basis.
Among business verticals, Cognizant reported a 1.9 per cent YoY growth in its financial services segment, which accounted for more than 35 per cent of its revenues. Revenue from health care, another key vertical, dropped 0.9 per cent during this period. Communications, media and technology vertical contributing 14.5 per cent of the company’s total revenues grew 10.6 per cent in constant currency terms on a YoY basis.
In the just ended quarter, Cognizant’s employee attrition rate stood at 24 per cent, a rise of 100 basis points over the last quarter and 200 basis points over the same period of last year. Total headcount of the company rose 1,700 on net basis and stood at 289,900 by the end of September quarter.