IT sector woes. Accenture cuts 19,000 jobs, slashes FY23 revenue growth forecast

In an indication of worsening macroeconomic conditions and its impact on the IT sector, Accenture Plc on Thursday announced that it would cut about 19,000 jobs or 2.5 per cent of its workforce over 18 months and lowered its annual revenue projections for FY23, sending tremors across the sector.

The reduction in jobs, over half of which affects individuals in non-billable corporate functions, will be undertaken in the next 18 months, Accenture said in an SEC filing Thursday. The company had increased its workforce by 38,000 in the year that ended in February 2023 to serve the increased demand in its services and solutions, it said.

As of February 28, its workforce stood at 7,38,000. “We proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services and solutions, given that compensation costs are the most significant portion of our operating expenses,” the company said justifying the job cuts.

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Growth stats

The company has trimmed its FY23 revenue growth guidance band at the upper end, amidst worries that recession-wary enterprises will cut technology budgets. The company pegged annual revenue growth to be in the range of 8-10 per cent in local currency, compared to the 8-11 per cent forecast earlier. It also estimated a foreign-exchange impact of negative 4.5 per cent.

It also forecasted its third-quarter revenue below street expectations in the range of $16.1 billion and $16.7 billion. Analysts on average were expecting revenue of $16.64 billion, according to Refinitiv data.

Julie Sweet, chair and CEO, Accenture, said the company was taking steps to lower its costs in fiscal 2024 and beyond, “while continuing to invest in our business and our people to capture the significant growth opportunities ahead”.

This comes at a time when the US and European banks are seeing a crisis due to the relentless hike in interest rates and contributing to a stalling of the growth momentum in the IT services sector.

Last month, another IT major Cognizant had indicated muted growth in deals in the pipeline and its first-quarter revenue forecast was below market expectations.

Kotak’s warning

Kotak Institutional Equities had already warned of a negative impact on the IT sector following the banking woes in US and Europe. “This will likely impact growth for Indian IT in H1 FY24, and bring down overall growth for FY2024. Spending on cost take-outs will pick up, but will yield benefits in H2 FY24 or later,” it said. “Current woes in the banking sector can impact sequential growth by 1-2 percent in Q1 FY24,” it added.

Indian IT giants such as Tata Consultancy Services (TCS), Infosys, Wipro, HCL Technologies, Mphasis, and LTIMindtree have exposure to some of the troubled banks.

Sector experts added that increasing economic woes for IT firms are an indication for these companies to look into serious reorganisation strategies.

Sanchit Vir Gogia, CEO and Chief Analyst at Greyhound Research said, “IT companies are experiencing pressure on all sides. From worsening macroeconomic conditions to the banking crisis in the States to the onslaught of generative AI, this is an indication that IT companies need to deliberate serious reorganisation of their businesses to be leaner, more IP oriented and forward-looking.”

• Also read: Amazon to cut 9,000 more jobs including at AWS and Twitch