Outsourcer Cognizant benefits from a surge in offshoring

The company posted strong revenue and profit growth in the first quarter

Outsourcer Cognizant Technology Solutions has reported strong revenue and profit growth for the quarter ended March 31, as customers moved work offshore to low-cost locations to maximize benefits from their IT budgets.

Cognizant, which has its headquarters in Teaneck, New Jersey, has most of its staff and services delivery from India, like its Indian competitors Tata Consultancy Services, Wipro, Infosys Technologies and HCL Technologies.

The company said on Tuesday that revenue grew to US$1.37 billion in the quarter, up by 43 percent from the same quarter last year. Net profits were $208.3 million, up by 37.5 percent year-on-year.

The company's growth reflects the uneven economic recovery around the world, said Francisco D'Souza, president and CEO of Cognizant, during an investor call. Growth was highest in North America, but more muted in Europe, Asia, and Latin America, he added.

The financial services market accounted for about 42 percent of the company's total revenue in the quarter. Revenue from this segment grew by 43 percent in the quarter from the same quarter last year. Revenue from the health-care segment, which accounted for 25.4 percent of the company's revenue in the quarter, was up 38 percent year-on-year.

Besides its main business in application development and management, Cognizant has signed contracts in new areas, including managed business services deals that combine traditional IT services with business process outsourcing, D'Souza said.

The company has forecast that revenue for the year will be at least US$5.9 billion up at least 29 percent compared to 2010. The company has increased its guidance as it is seeing healthy demand in North America and expects growth to return in other markets, D'Souza said.

Cognizant added 7,200 staff in the quarter, taking the total to 111,000 at the end of the quarter. The company said its top priority is to attract and retain quality staff, a challenge it shares with other outsourcers with Indian operations. Problems of staff attrition and increasing wages have returned to India after the increase in offshore outsourcing.

Cognizant plans wage increases of 12 percent to 14 percent this quarter, said Gordon Coburn, the company's chief financial and operating officer.

The company said it continues with its strategy of maintaining its non-GAAP (generally accepted accounting principles) operating margins within a targeted range of 19 percent to 20 percent, while making investments in new service and delivery capabilities and talent. The margins were slightly higher than the target in the quarter positioning the company well for the proposed wage increases in the current quarter, D'Souza said.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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