Despite an economic slowdown, Nasdaq-listed software services firm Cognizant Technology Solutions Corp. has provided a robust guidance for the current fiscal year. President and managing director, global delivery, Chandra Sekaran spoke about the optimistic prediction and other issues impacting the information technology (IT) sector. Edited excerpts:
Your guidance seems far more confident than that of most other IT companies in India. What makes you so confident about the future?
Tech talk: Cognizant Technology Solutions’ Chandra Sekaran.
There are three to four reasons why we feel optimistic about meeting our guidance. As an industry, we still feel the value proposition through off-shoring and outsourcing is quite compelling. So, customers would continue to utilize (these) services to control their own costs.
Secondly, we enjoy a special place in the industry due to our unique operating model, which is characterized by very high-touch customer relationship, backed with a solid delivery excellence. Due to this... we have been able to make any solutions or services that can help our customers meet their short- and long-term cyclical challenges.
The third reason is really the re-investment strategy that we have been following at Cognizant ever since we started. We invest more in our business, so even during a downturn, we actually re-invest our profits back into business, so that we can grow our business even faster.
This really helps in giving our customers a superior experience. It helps in better relationship management and we are proactively able to identify their potential problems and come back to them with prompt solutions in the area of infrastructure or high-end business processes and services. More recently, it has helped us re-energize and revitalize the consulting offering. The investments we have made in these new offerings are helping us make a lot more transactions with our existing customers.
We keep investing in newer geographies to globalize our business. The US has been our strongest market and in last three years, we have been focusing on European markets. Europe been a fantastic space for Cognizant. Two years ago, our revenue from Europe was about 10-11%. Today, it’s about 18%. We are now focusing on emerging markets. We will continue to invest in newer geographies. It’s helping us to get a lot more traction and that’s why we are very optimistic about meeting our guidance.
Let me ask you to spilt up the year for us because most other Indian IT companies seem to be very cautious about the current quarter. They say if there is growth it will be in the last two quarters of the year, which is very back-ended. Is that how you map the year?
We have given a guidance of about 2% growth. We will do at least $760 million (Rs3,762 crore) for our second quarter, which is the June quarter. We have also reaffirmed our guidance for 10% growth for the whole year. So, we are quite confident of meeting the guidance. We have seen customer budgets getting finalized in the last few months. We see some kind of firm statements coming from our customers. In a way we are able to work closely and identify projects that will start flowing in from second quarter onward. We definitely see some optimism in our revenue opportunity in subsequent quarters.
How much lower do you think is the budget going to be for this year? Our interaction with some of the other IT companies indicates that budgets are becoming a bit irrelevant in the present economic scenario.
I won’t say that. I believe budgets are really important. Even if you are going to spend less, you need to have certain budgets earmarked for how you want to spend your IT dollars. So, budgets are important and in most situations what we see is actually split. While some customers are marginally down, for most customers the situation is pretty flat. Everywhere, customers are really focused on reducing the cost. That’s why you see lots of discussions on reducing the total cost and ownership of the customer, optimizing IT services and meeting business goals at the same time. So, offshore and outsourcing comes in lightly to help customers.
How much lower for budgets then—5-10% compared with last year, or more than that?
It is very low. Single digits in case of half of our customers and for most others, it is pretty flat.
Infosys indicated to us that they are expecting pricing cuts, as deep as 6%, on some clients. What are you factoring in?
We haven’t noticed anything unusual on the pricing site, although we have seen a decline of 2-3% sequentially. But that’s more to do with the type of services we are winning. If you look at your application management, this is supporting the existing applications, that share of our business is increasing more than the discretionary applications development. The skills that are needed in delivering these services are slightly lower than a complex application development. So, you see some reduced price.
Also, the type of deals we are chasing are large opportunities. Here customers do expect some economies of scale. That again leads to some downward movement in pricing, and if you really look at it, it is not really a price reduction, but more of scale efficiency and the type of services that you take to the customers. It is actually showing the 2-3% net reduction.
At this point should Indian IT companies be worried about the noises that are coming out on protectionism and anti-outsourcing? I am referring to some of the statements made by US President Barack Obama. Do you think there is a reason to be concerned?
Definitely these noises don’t offer well for the industries, so it is a concern. But we should not be reacting more than what is needed.
So, even after the President’s speech... we are still getting expert opinions on what it really means. It’s very clear (that) the implications are going to be beyond IT industry. It is going to affect every US corporation. It is going to affect all overseas operations. So, I am sure it will be widely debated before it is taken to conclusion.