Covid has widened the digital divide: Brian Humphries

Cognizant Technology Solutions Corp. on Thursday posted a 30% year-on-year decline in net profit to $348 million for the quarter ended September on high acquisition-related costs and a one-time tax of about $140 million. Its revenue was flat at $4.2 billion, including a negative 130 basis points impact from the exit from the non-strategic content services business.

Sequentially, there was a broad-based improvement in the business, particularly in areas such as cloud, enterprise application services, internet of things (IoT), and software engineering. The Teaneck, New Jersey-based firm expects its full-year 2020 revenue to be at the high-end of the previously guided range at approximately $16.7 billion, or a decline of 0.4% in constant currency. Its digital revenue grew 13% y-o-y and contributed 42% to the total revenues for the third quarter as digital bookings continued to show momentum.

In an interview, Brian Humphries, CEO, Cognizant spoke about the outlook for the sector, focus areas and tackling visa issues, among others. Edited excerpts:

What is the outlook for the sector, and how is the current demand environment?

We are seeing two categories of trends: cyclical and secular. First, on the cyclical side and set against a protracted pandemic, clients are increasingly decisive on their technology priorities. They are focused on cost savings, capex reductions, resiliency and agility. This is creating new opportunities for us. We are seeing accelerated vendor consolidation trends, which we stand to benefit from, given our deep strategic relationships and growing reputation in digital.

The more consequential secular trend is digital transformation. This is our top priority. It goes to the heart of client business model innovation, transformation and experiences. Covid-19 has widened the digital divide between digital natives and legacy-economy companies, which have struggled to shift to a fully digital operating model. I believe the industry is at an inflection point in digital adoption. We see growing client interest in realizing more immediate customer and business value by identifying use-cases to shift to agile digital workflows. That means transforming processes to become agile, data-driven, and automated.

With multiple digital acquisitions this year, is inorganic growth key to your digital, cloud business?

In 2020, we invested more than $1 billion in eight digital acquisitions. As more clients implement agile digital workflows, we are very serious about enabling them to become software-driven enterprises and digital to their core. Our M&A strategy continues to be focused on advancing our digital priorities across the globe in our key battlegrounds of AI & analytics, cloud, digital engineering, and IoT. Our acquisitions this quarter include 10th Magnitude and New Signature in cloud, Bright Wolf in IoT, and Tin Roof in digital engineering.

By when do you see digital revenue crossing half of your total revenues?

Digital revenue grew 13% year over year and accounted for 42% of overall revenue, and we have enjoyed continued strength in digital bookings and the qualified pipeline. We are well on our way in the journey towards 50% digital revenue.

Given the frequent changes in regulations, how do you plan to tackle the H-1B visa-related challenges?

We are evaluating the new “Interim Final Rules”, and Cognizant will remain in compliance with all H-1B rules and regulations. Due to Cognizant’s business planning and effective forecasting of resource needs, the impact of any changes to US immigration policies will not affect our ability to serve our clients. At this point, we expect any 2020 financial impact to be minimal. Looking into 2021, we have a series of core initiatives to further globalize Cognizant, which include increased college hiring, growing our regional and nearshore delivery capability and driving more automation within delivery. We believe, however, that fair immigration policies are vital to the US economy and to Cognizant. As an American headquartered company, we look forward to continuing our work to educate policymakers on the importance of attracting talent from around the world to keep the US competitive and a leader in innovation.