Cognizant Technology forecasts slowest revenue growth in 14 years

IT services provider Cognizant Technology Solutions Corp forecast its slowest revenue growth in 14 years for the current quarter, as clients worldwide rein in IT spending.

New Jersey-based Cognizant said it expects adjusted profit of between 78-80 cents per share and revenue of $3.18 billion-$3.24 billion for the three months ending March.

The top end of the revenue range indicates an 11.34 per cent growth in the current quarter from a year earlier, its slowest since the March quarter of 2002.

Analysts on average were expecting a profit of 81 cents per share and revenue of $3.32 billion for the first quarter, according to Thomson Reuters I/B/E/S.

IT services companies have been focusing on high-margin digital technology and automation outsourcing contracts at a time when clients are cutting back on routine IT services spending.

Cognizant, which competes with Indian IT services firms such as Tata Consultancy Services, and Infosys Ltd., had been benefiting in the past few quarters from higher spending by clients in the healthcare and financial sectors in North America.

But, growth in healthcare seems to have slowed this quarter.

Revenue from the division rose about 23 per cent to $951.9 million, the slowest in five quarters, and accounted for about 30 per cent of total revenue.

The healthcare unit has led Cognizant’s growth in the past year, driven by its $2.7 billion acquisition of the U.S. healthcare IT services provider TriZetto Corp and the implementation of the U.S. Affordable Care Act, or Obamacare.

However, an unprecedented wave of M&A activity among health insurers has created some uncertainty for the company. On one hand, there are fewer companies with which to do business. On the other, merged companies may need help to integrate their systems.

Revenue from the financial services business, its biggest, rose 16.6 percent to $1.31 billion. Cognizant’s revenue increased 17.9 per cent to $3.23 billion.

The company’s net income rose to $423.4 million, or 69 cents per share, from $362.9 million, or 59 cents per share, a year earlier.

Excluding items, the company earned 80 cents per share.

Analysts on average had expected a profit of 78 cents per share and revenue of $3.24 billion, according to Thomson Reuters I/B/E/S.