Bangalore: Technology services firm Cognizant Technology Solutions Corp., rattled by the downturn in the US economy, is expanding rapidly in emerging markets such as China and India as it looks for succour, but the move may take a while to provide a balm.
“Investments being made in those geographies will start showing results two to three years from now,” said chief executive Francisco D’Souza.
While competitors such as Tata Consultancy Services Ltd and Infosys Technologies Ltd have made strides in galloping economies such as China and India, Cognizant lags far behind with only 1.5% of its revenue coming from Asia. The company, which gets the bulk of its revenue from the US, drew 20% of its second-quarter revenue from Europe.
Cognizant, which serves many US financial firms battered by the credit crunch and housing market slump, has been trying to diversify its business and beef up its presence in Europe. But as the malaise in the US spreads to Europe, Cognizant is testing other shores.
“We continue to focus on the markets in Asia and have also started, in a preliminary way, to look at some of the markets in Latin America and the Middle East,” said D’Souza.
Kaufman Bros Lp. analyst Karl Keirstead expects Cognizant to get 10-15% of revenue from outside the US and Europe in the next two-three years. Almost three-fourths of the company’s 59,000 employees are based in India.
Shares of the company, which cut its 2008 outlook last week, have lost close to 30% of their value in the last 52 months. The broader S&P 1500 IT Services Industry Index has dropped about 11% during the period.
IT infrastructure services, business process outsourcing, or BPO, and knowledge process outsourcing, or KPO, are areas with potential for growth in a relatively short period of time, said Cognizant’s D’Souza. For the second quarter, IT Infrastructure accounted for 5% of revenue. “I expect this segment to continue to grow ahead of our company’s average growth for some time to come,” he said.
The company’s financial services segment posted 7% sequential growth in the second quarter and accounted for half of overall revenue. But D’Souza expects concerns about the segment to prevail for the rest of the year because of the increasing turmoil in the industry.
Cognizant also expects slower growth in its health insurance business for the rest of the year.