 "We've focused heavily on building front-end capability in Europe: R Chandrasekaran")
Nasdaq-listed Cognizant has reported a 18.1% growth in revenue during the first quarter at $2.02 billion as compared to $1.71 billion during the same quarter of 2012, beating Street's estimates.
The company, which started 13 years after Infosys, has managed to replace the latter as the number-two player among offshore-centric information technology (IT) services companies at the end of the January-March quarter. It has also beaten Infosys in terms of revenue on a full year basis and in most of the operating parameters as well.
The company has reaffirmed full year guidance of 17%, which is higher than Nasscom's estimation of 12-14% for the Indian IT industry and higher than Infosys' guidance of 6-10%. The company said in the current business environment, straddling this dual mandate and helping our clients ‘run better’ and ‘run different’ will sustain our industry-leading growth.
The IT major lined up capex of $400 million and said it is open for acquisitions in $20-80 million range. Cognizant is targeting companies with a revenue of up to $200 million.
What is the strategy that has helped Cognizant to post good revenue growth? North America continues to be the largest contributor for the company, going forward will dependency on a particular geography be good?
As a company, we have always believed in focusing on a limited number of things and having the discipline to align our efforts and investments on areas of focus. It is this strategy that has helped us post industry-leading revenue growth for many years, drive greater differentiation and add value to clients, and establish leadership positions in our industries, geographies and service lines.
While we are happy with our continued growth in North America, it is important to note that our investments in both Europe and the Asia Pacific region are yielding good results.
During the March quarter, Europe grew by 22.7% year-over-year and 6.7% sequentially. Europe remains an attractive long-term market for Cognizant. The IT services market in Europe is about same size as North America but the penetration levels are only a fraction of it.
Over the years, we have focused heavily on building front-end capability in Europe and strengthening local presence, which is driving strong growth in Europe, both in the UK and the Continent.
Likewise, markets outside of North America and Europe continued to remain strong, growing 35% year-over-year and 4.8% sequentially. In Asia Pacific we are seeing solid traction across the region, particularly in Financial Services, Retail and Manufacturing, and Life Sciences.
Cognizant announced $400 million capex in 2013 (In 2012 it was $334 million). How much of it will be invested in India?
We do not break up our capex country-wise or segment-wise. What we give is our global capex spend, but it would be fair to assume that the bulk of our capex will be spent on our India construction program.
Which are the focus and investment areas? You are betting big on SMAC. Why?
With our ongoing focus and investment in the area of new technologies, we are seeing growing client adoption of social, mobile, analytics, and cloud (SMAC) technologies. Over the last 18 months, Cognizant has built capabilities in each of the SMAC areas—both in terms of end-to-end services and also in terms of intellectual property and thought leadership.
Our solutions in these areas are a key part of our endeavor to help our clients ‘run different’ and we have a solid pipeline of SMAC opportunities. This year we expect to deliver about $500 million in SMAC-related services. While the significant majority of this work will be done with our existing client base.
Cognizant is also making significant investments in the area of new delivery models. A critical goal of new delivery models is to break the linearity between revenue growth and headcount growth, or, in other words, to drive non-linear revenue. We are doing this with solutions that address the changing dynamics in our clients’ industries.
To that end, we are in the process of launching our portfolio of Cognizant BusinessCloud Solutions, which enable clients to quickly deploy a range of on-demand business and IT solutions without the larger capital outlays and longer implementation timelines that are sometimes associated with traditional on-premise solutions.
The portfolio includes offerings that leverage two models: Software-as-a-Service delivery model, or SaaS, which centrally hosts software and associated data on the cloud; and, Business Process-as-a-Service, or BPaaS, which integrates a SaaS platform together with people and process capabilities to deliver an end-to-end business or technology outcome for a client. Our investment in BusinessCloud will address the increasing client demand for business models that deliver outcomes with a cost mix that is increasingly variable rather than fixed.
Cognizant open for acquisitions?
The company’s acquisition philosophy is driven by three objectives: Expanding geographic footprint, filling in gaps or strengthening solutions spectrum, and strengthening domain, consulting or analytics capability. We continue to look for acquisitions that meet one or more of these criteria, globally.
Company’s strategy of acquiring is for “capability” and not for capacity. At over 162,000 employees end of March 2013, Cognizant can deliver to almost any client need at scale. Additionally, through its proven recruitment and talent management programs, Cognizant can grow faster organically (and with higher quality and lower risk) than through scale acquisitions.
We look at small “tuck-under” acquisitions that add capability in specific areas. Given the size of Cognizant today, company’s sweet spot is in $20-80 million range, maybe going up to $200 million in target company revenue.
What is the idea behind recent organisational changes, where you (part of Chandrasekaran's responsibilities have been moved to a few executives, including Debashis Chatterjee, Sumithra Gomatam and Vinayambika Kidiyurand) and Gordon Coburn (who was the Chief Financial and Operating Officer until February 2012, when he was appointed the President of the company. Parts of his prior responsibilities have now been moved to T Sridhar as Chief Operating Officer) have given on a slice of your responsibilities to the next generation.
As we continue our journey, it is critical that we structure our leadership to balance the need for agility and nimbleness with the need for effectiveness and efficiency.
The senior management changes are in line with Cognizant’s strategy for the future and will help us further develop our executive talent. Rotation of roles in order to broaden and deepen our executive talent is an important instrument of evolving our business for the future, while cross pollinating best practices across the organisation to further strengthen our customers’ business.
How does Cognizant see the immigration reform bill play out?
It is important to remember that we are at a very preliminary stage of the legislative process. Therefore it is too early to speculate about the potential impact of the numerous scenarios. Once we have more clarity on a potential outcome, we will be able to discuss the likely impact.
It’s also important to remember that this bill does not affect only Cognizant. It affects many of the largest companies in the US who use our services because of the shortage of STEM (science, technology, engineering, math) workers in the US. What would be harmed if the bill became law as written is America’s ability to innovate, test new drugs, develop sound energy solutions, create new products, and be globally competitive.
Our clients are now understanding the bill. Many have called us to express support. As others become aware of how the current proposal might impact their own operations, we believe they will make their concerns known to policymakers.
This legislative process might last a full year or longer, and our clients are sophisticated and understand that we are at the very front-end of a long process and amendments are already being made to the bill.
The company, which started 13 years after Infosys, has managed to replace the latter as the number-two player among offshore-centric information technology (IT) services companies at the end of the January-March quarter. It has also beaten Infosys in terms of revenue on a full year basis and in most of the operating parameters as well.
The company has reaffirmed full year guidance of 17%, which is higher than Nasscom's estimation of 12-14% for the Indian IT industry and higher than Infosys' guidance of 6-10%. The company said in the current business environment, straddling this dual mandate and helping our clients ‘run better’ and ‘run different’ will sustain our industry-leading growth.
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In an interview to T E Narasimhan, R Chandrasekaran, Group Chief Executive, Technology and Operations, Cognizant says while he is happy with the growth in North America (which contributes 78.3% to the overall revenue), investments in both Europe and the Asia Pacific region are yielding good results.
The IT major lined up capex of $400 million and said it is open for acquisitions in $20-80 million range. Cognizant is targeting companies with a revenue of up to $200 million.
What is the strategy that has helped Cognizant to post good revenue growth? North America continues to be the largest contributor for the company, going forward will dependency on a particular geography be good?
As a company, we have always believed in focusing on a limited number of things and having the discipline to align our efforts and investments on areas of focus. It is this strategy that has helped us post industry-leading revenue growth for many years, drive greater differentiation and add value to clients, and establish leadership positions in our industries, geographies and service lines.
While we are happy with our continued growth in North America, it is important to note that our investments in both Europe and the Asia Pacific region are yielding good results.
During the March quarter, Europe grew by 22.7% year-over-year and 6.7% sequentially. Europe remains an attractive long-term market for Cognizant. The IT services market in Europe is about same size as North America but the penetration levels are only a fraction of it.
Over the years, we have focused heavily on building front-end capability in Europe and strengthening local presence, which is driving strong growth in Europe, both in the UK and the Continent.
Likewise, markets outside of North America and Europe continued to remain strong, growing 35% year-over-year and 4.8% sequentially. In Asia Pacific we are seeing solid traction across the region, particularly in Financial Services, Retail and Manufacturing, and Life Sciences.
Cognizant announced $400 million capex in 2013 (In 2012 it was $334 million). How much of it will be invested in India?
We do not break up our capex country-wise or segment-wise. What we give is our global capex spend, but it would be fair to assume that the bulk of our capex will be spent on our India construction program.
Which are the focus and investment areas? You are betting big on SMAC. Why?
With our ongoing focus and investment in the area of new technologies, we are seeing growing client adoption of social, mobile, analytics, and cloud (SMAC) technologies. Over the last 18 months, Cognizant has built capabilities in each of the SMAC areas—both in terms of end-to-end services and also in terms of intellectual property and thought leadership.
Our solutions in these areas are a key part of our endeavor to help our clients ‘run different’ and we have a solid pipeline of SMAC opportunities. This year we expect to deliver about $500 million in SMAC-related services. While the significant majority of this work will be done with our existing client base.
Cognizant is also making significant investments in the area of new delivery models. A critical goal of new delivery models is to break the linearity between revenue growth and headcount growth, or, in other words, to drive non-linear revenue. We are doing this with solutions that address the changing dynamics in our clients’ industries.
To that end, we are in the process of launching our portfolio of Cognizant BusinessCloud Solutions, which enable clients to quickly deploy a range of on-demand business and IT solutions without the larger capital outlays and longer implementation timelines that are sometimes associated with traditional on-premise solutions.
The portfolio includes offerings that leverage two models: Software-as-a-Service delivery model, or SaaS, which centrally hosts software and associated data on the cloud; and, Business Process-as-a-Service, or BPaaS, which integrates a SaaS platform together with people and process capabilities to deliver an end-to-end business or technology outcome for a client. Our investment in BusinessCloud will address the increasing client demand for business models that deliver outcomes with a cost mix that is increasingly variable rather than fixed.
Cognizant open for acquisitions?
The company’s acquisition philosophy is driven by three objectives: Expanding geographic footprint, filling in gaps or strengthening solutions spectrum, and strengthening domain, consulting or analytics capability. We continue to look for acquisitions that meet one or more of these criteria, globally.
Company’s strategy of acquiring is for “capability” and not for capacity. At over 162,000 employees end of March 2013, Cognizant can deliver to almost any client need at scale. Additionally, through its proven recruitment and talent management programs, Cognizant can grow faster organically (and with higher quality and lower risk) than through scale acquisitions.
We look at small “tuck-under” acquisitions that add capability in specific areas. Given the size of Cognizant today, company’s sweet spot is in $20-80 million range, maybe going up to $200 million in target company revenue.
What is the idea behind recent organisational changes, where you (part of Chandrasekaran's responsibilities have been moved to a few executives, including Debashis Chatterjee, Sumithra Gomatam and Vinayambika Kidiyurand) and Gordon Coburn (who was the Chief Financial and Operating Officer until February 2012, when he was appointed the President of the company. Parts of his prior responsibilities have now been moved to T Sridhar as Chief Operating Officer) have given on a slice of your responsibilities to the next generation.
As we continue our journey, it is critical that we structure our leadership to balance the need for agility and nimbleness with the need for effectiveness and efficiency.
The senior management changes are in line with Cognizant’s strategy for the future and will help us further develop our executive talent. Rotation of roles in order to broaden and deepen our executive talent is an important instrument of evolving our business for the future, while cross pollinating best practices across the organisation to further strengthen our customers’ business.
How does Cognizant see the immigration reform bill play out?
It is important to remember that we are at a very preliminary stage of the legislative process. Therefore it is too early to speculate about the potential impact of the numerous scenarios. Once we have more clarity on a potential outcome, we will be able to discuss the likely impact.
It’s also important to remember that this bill does not affect only Cognizant. It affects many of the largest companies in the US who use our services because of the shortage of STEM (science, technology, engineering, math) workers in the US. What would be harmed if the bill became law as written is America’s ability to innovate, test new drugs, develop sound energy solutions, create new products, and be globally competitive.
Our clients are now understanding the bill. Many have called us to express support. As others become aware of how the current proposal might impact their own operations, we believe they will make their concerns known to policymakers.
This legislative process might last a full year or longer, and our clients are sophisticated and understand that we are at the very front-end of a long process and amendments are already being made to the bill.