Accenture braces for slowdown and job cuts, says AI's returns ‘underwhelming’

Bengaluru: Accenture Plc is bracing for slower days ahead even as artificial intelligence (AI) captures its clients' mind space at an unprecedented pace. The consulting giant said AI’s promise has so far outstripped its real-world impact, forcing the company to point towards job cuts.

“It is well recognized that advanced AI has taken the mind share of CEOs, the C suite and boards faster than any technology development we've seen in the past few decades,” said Julie Sweet, chair and chief executive of Accenture at the company’s post-earnings call with analysts. “At the same time, as reported widely, value realization has been underwhelming for many and enterprise adoption at scale is slow, other than with digital natives.”

While Accenture navigates the Gen AI uncertainty, on recent policy swings, Sweet said the company is largely unaffected by the changes in the country’s visa policies introduced by US President Donald Trump.

“This (H-1B) is really a non-issue because we only have about 5% of our people in the US on H-1B visas, and they are for really specialized experience and skills for our clients. So, you know, (this is) not something that is really a big impact on Accenture,” said Sweet.

On Friday, Trump signed an executive order requiring companies to pay $100,000 annually for every new foreign worker under the H-1B visa, up from about $1,000 earlier. The White House clarified on Sunday that the one-time fee would apply only to new applications, not to existing visa holders. H-1B visas allow highly skilled non-immigrants to work in the US temporarily.

Accenture ended its September-August financial year with a revenue of $69.7 billion, up 7% from the previous year. This translates to about $4.78 billion in incremental revenue. For perspective, Accenture alone has added more revenue during the year than India's 10 largest IT firms did on a cumulative basis, which was about $3.1 billion for their fiscal year ended March.

The company’s management said this performance comes in the backdrop of a “bad economic, macro-economic backdrop that did not improve over FY24”. Accenture derives half of its revenue from the US, its biggest market.

The company said it expects growth to slow down hereon, and guided for a revenue growth of 2-5% in local currency terms for FY26. “From a discretionary perspective, what we've assumed is, at the top end of the range, there's no change in discretionary spend, while at the bottom of the range, it allows for deterioration,” said Angie Park, chief financial officer of Accenture.

Investors were disappointed with the company's performance; its shares were down 2% at $234.26 as of 9:54 pm IST on the New York Stock Exchange

Accenture said it had trimmed the company's headcount by 11,000 during June-August to end the year with 779,000 employees. The rise of AI is likely to lead to more job cuts, even as the company believes it will add more people on a net-net basis in the current fiscal year.

“We’re trying to—in a very compressed timeline where we don't have a viable path for skilling—sort of exiting people, so we can get more of the skills we need,” Sweet said.

To this effect, the company initiated a six-month business optimization programme and expects costs of $865 million over the six months, primarily severance costs associated with this talent strategy. This also includes the cost of impairment of assets, “mostly related to the divestiture of two acquisitions that are no longer aligned with the company’s strategic priorities”, the company said in its earnings press release.

As a result of the six-month programme, Accenture expects to save over a billion dollars, which the company said it will reinvest in its business and people.

In India, top IT service provider Tata Consultancy Services had recently let go 2% of its workforce, or 12,200 employees, in middle and senior roles. TCS attributed its decision to “strategic initiatives on multiple fronts”, including investing in new-tech areas, entering new markets, deploying AI at scale, deepening partnerships, creating next-gen infrastructure and realigning the workforce model.

Accenture said its Gen-AI bookings during the year totalled $5.9 billion. This takes the total tally of Gen AI orders to $8.9 billion since September 2023. Its current Gen AI orders comprise almost 7.3% of its overall order bookings of $80.6 billion for the year. The company's Gen AI-related revenue for the year totalled $2.7 billion.

Accenture is the first company in the sector to detail the value of its Gen AI contracts. India's homegrown IT service providers are yet to spell out their revenue or confirmed orders from the new technology.

Accenture’s dim outlook stokes further uncertainty for India’s five largest software service providers—Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd and Tech Mahindra Ltd, that are set to announce their quarterly earnings next month.