Outsourcer Cognizant Technology Solutions has reported strong revenue and profit growth for the quarter ended Sept. 30, as outsourcers benefit from demand that had been pent up during the recession.
Cognizant, in Teaneck, New Jersey, has a majority of its staff in India, and competes with Indian outsourcers like Tata Consultancy Services and Infosys Technologies, which also reported strong revenue and profit growth in the quarter.
Revenue for the third quarter was US$1.2 billion, up 43 percent from $853.5 million in the third quarter last year. Net profit was $203.7 million, up 49 percent from the same quarter last year.
Application development, which is an indication of customers' discretionary expenditure, grew more, at 14 percent, than application maintenance, which grew by 6 percent, said Francisco D'Souza, president and CEO of Cognizant, in a conference call on Monday.
The company has also raised its outlook for the fourth quarter and for the whole year. Fourth quarter revenue is anticipated to be at least $1.27 billion, while fiscal 2010 revenue is expected to be at least $4.55 billion, up at least 38.8 percent compared to last year, the company said.
Cognizant, however, warned that pent-up demand, which was a driver of growth in the second and third quarter, may not continue in the fourth quarter. Demand is still healthy, but there were some surges in business in the previous quarters that are not expected in the fourth quarter, said Gordon Coburn, chief financial and operating officer at Cognizant.
IT budgets next year will likely go up, and customers are now considering outsourcing a variety of new services, D'Souza said.
New regulations in the banking and financial services and health care markets are likely to give a boost to IT spending by these sectors next year, D'Souza said. Clients are likely to move more of their usual work offshore to save money to invest in technology to meet regulatory requirements, he added. D'Souza, however, said that there would not be a dramatic shift in the proportion of services delivered from onshore rather than offshore locations.
High growth is however raising concern about increasing staff costs and attrition in India. Cognizant said that the competition has been disciplined on wages, and that trend is likely to continue.
In the quarter ended Sept. 30, Cognizant experienced growth in all the market segments it addresses, and in all its services.
The company has introduced pay-as-you-go models such as software-as-a-service and business process as a service, as the nature of business is changing, D'Souza said. It is also helping companies migrate their applications to cloud computing infrastructure, and is working with providers of cloud computing services like Salesforce.com, he added.
Cognizant and Indian outsourcers are counting on U.S. President Barack Obama's visit to India this week to ease tensions surrounding concerns that U.S. jobs are moving to India because of offshore outsourcing. D'Souza said that it is recognized that investment and job creation between India and the U.S. is two way