IT giant Cognizant to fire 3,500 employees over 2 years

IT services giant Cognizant has announced its plan to fire 3,500 employees over two years. The decision is aimed at reducing the company's costs amid a tough macroeconomic climate. In the first quarter of 2023, the firm's revenue beat Wall Street estimates but declined by 0.3% year-over-year. Cognizant expects a further decline in 2023 too.

• The uncertainties that engulfed the global economy in mid-2022 are yet to go away. Recessionary fears are still at large.
• IT services companies worldwide have been hit by a lack of spending by businesses.
• Last month, Cognizant's rival Accenture announced the decision to cut 19,000 staffers. Indian IT services firms, Infosys and Wipro, have also fired employees.

The quarter ended in March was Cognizant's first quarter under new CEO Ravi Kumar. The company saw its net profit increase by 3% year-over-year to $580 million. Talking of month-over-month growth, the profit grew 11.2%. The firm's revenue of $4.81 billion overtook the guidance in the range of $4.71-$4.76 billion. Kumar took charge after Cognizant "involuntarily terminated" former CEO Brian Humphries.

Despite the sequential increase in profit, Cognizant's guidance for 2023 remains glum. For the full year, the company expects its revenue to see a decline of 1.2% to a growth of 0.8%. In constant terms, -1-1% growth. As per the guidance, the firm's revenue will be between $19.2 billion and $19.8 billion. Second-quarter revenue is expected to decline by 1%.

Cognizant's decision to fire staffers is part of its NexGen program, which aims to simplify the company's operating model and optimize corporate functions. As part of the layoffs, the firm will spend $200 million on severance and other costs. It also plans to cut $100 million in real estate costs by 2025. Last quarter, the company's operating margin fell 40 points to 14.6%.

"Our drive for simplification will include operating with fewer layers in an effort to enhance agility and enable faster decision-making," Cognizant said. "We expect the savings generated by the program to help fund continued investments in our people and revenue growth opportunities." The company expects the reduction in real estate costs will help expand its footprint in smaller cities, especially in India.