IT major Cognizant on Thursday posted a 4.1 per cent increase in net profit at USD 497 million for the September quarter and announced plans to slash up to 7,000 jobs in the next few months as part of cost-reduction efforts. Besides, the US-based company -- which has around two lakh employees in India -- would partially exit from content operations business and the move would impact another 6,000 jobs.
Cognizant's total head count stood at 2,89,900 at the end of September. The company did not provide details about the geographies where the jobs would be impacted. Since India accounts for the biggest share of the company's staff, the impact of these layoffs is expected to be significant.
In 2018 September quarter, Cognizant reported a net profit of USD 477 million. The company's revenue grew 4.2 per cent to USD 4.25 billion in the latest September quarter. In the year-ago period, the same stood at USD 4.07 billion, according to a statement.
Cognizant will remove about 10,000-12,000 mid-to-senior level associates worldwide from their current roles in the coming quarters. This would include a net reduction of about 5,000 to 7,000 roles (about 2 per cent of its total head count) and re-skilling and redeployment of about 5,000 of the total associates impacted.
"We expect the remaining 5,000-7,000 associates to exit the company by mid-2020 either through attrition or role elimination," Cognizant CFO Karen McLoughlin said during an earnings call. Another 6,000 roles will be impacted by Cognizant's decision to exit a subset of its content operations business.
"... our work is largely focused on determining whether certain content violates client's standards and can involve objectionable materials. We've determined that this subset of work is not in-line with our strategic vision for the company," Cognizant CEO Brian Humphries said.
He noted that the company would work with partners to explore ways to transition these roles to alternative vendors, thereby reducing the impact on the associates and also reducing any associated charge. "While we intend to exit this work, we recognise the cleansing, the web of objectionable content is a worthy cause and one in which companies have a role to play.
"For this reason, we have decided to allocate USD 5 million to fund research aimed at increasing the level of sophistication of algorithms and automation, thereby reducing users exposure to objectionable content," he said.
The optimisation of cost structure is expected to result in total charges of approximately USD 150-200 million, primarily related to severance and facility exit costs. The move is expected to result in an annualised gross savings run rate of approximately USD 500-550 million in year 2021, the company said.
Cognizant raised the lower end of its revenue growth outlook to 4.6-4.9 per cent for 2019 in constant currency terms. The earlier guidance was 3.9-4.9 per cent. It expects revenue to go up 2.1-3.1 per cent in the December quarter.
In the three months ended September, Cognizant's revenue was higher by 5.1 per cent on constant currency basis, exceeding its guidance of 3.8-4.8 per cent revenue growth given for the third quarter. The company saw its financial services segment -- which accounted for over 35 per cent of the total revenues -- registering a 1.9 per cent growth in constant currency terms, while revenues from healthcare vertical fell 1.2 per cent.
"Looking ahead, we see a clear path to unlock the organisation's full growth potential, win in our key digital battle-grounds, and return Cognizant to its historical position of being the bellwether of the IT services industry," Humphries said. He announced simplification of its operating model and a cost reduction programme that would the company to fund investments in growth.
"Our 2020 Fit for Growth Plan is expected to run for two years. This program is designed to simplify the way we work, reduce our cost structure and fund investments in the business which will enable growth," he said.