Q3 Results: Cognizant To Lay Off Up To 7,000 Employees As Part Of Two-Year Restructuring Plan
An employee works on a laptop computer in an office area. (Photographer: Dhiraj Singh/Bloomberg)

Q3 Results: Cognizant To Lay Off Up To 7,000 Employees As Part Of Two-Year Restructuring Plan

Cognizant Technology Solutions announced plans to restructure its businesses that will lead to significant job cuts as it looks to offset a decline in spending by financial companies.

The U.S.-based company unveiled a two-year ‘Fit-for-Growth’ plan which aimed at saving between $500 million and $550 million in 2021 and record restructuring charges of between $150 million and $200 million by the end of next year.

It will remove about 10,000-12,000 mid-to-senior level associates worldwide from their current roles in coming quarters. The gross reduction is expected to lead to a net reduction of approximately 5,000 to 7,000 roles (about 2 percent of its total headcount) 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.
Karen McLoughlin, CFO, Cognizant

The company has not detailed out the geographies that would be impacted by the reductions. However, given that India accounts for the biggest share of the company's headcount, the impact of these layoffs is expected to be significant.

This is at a time when three of its five large banking clients are unlikely to turn corners, according to a Nirmal Bang report.

Kotak Institutional Equities, in a report, said that there is some time before the company sees growth and competitiveness return. "Turnaround plan is credible though the magnitude of change required has been a lot more than one would have bargained for,” the report said.

“Cognizant’s growth model has been impacted by slippages in sales execution, lack of scale up of new logos, loss of mindshare in digital competencies and weak participation in large deals. The company’s turnaround plans aim at addressing these gaps especially in digital and sales. More clarity will emerge on competitiveness in large deals even as this remains a gap at present,” it added.

Earnings Highlights (Q3CY19, QoQ)

  • Revenue up 2.6 percent to $4,248 million vs $4,141 million.
  • EBIT up 8.1 percent to $669 million versus $619 million.
  • EBIT margin at 15.7 percent versus 15 percent.
  • Net profit down 2.2 percent to $499 million.
  • Company raised CY19 guidance to 4.6-4.9 percent in constant currency terms. from the previous 3.9 percent to 4.9 percent.

Cognizant saw its financial services segment, which accounted for over 35 percent of the company's revenue, posting 1.9 percent growth in constant currency terms, while healthcare decreased 1.2 percent.

(With inputs from PTI)

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