If Cognizant and Wipro keep to the June quarter revenue estimate that each has given for itself, Cognizant will overtake Wipro's IT Services arm for the first time to become the number three in the country's software pecking order.
Cognizant has estimated that revenues for the quarter ending June 2011 would be at least $1.45 billion while Wipro' IT Services arm expects revenues in the same quarter to be between $1.394 billion and $1.422 billion.
Wipro's estimates do not include revenues from SAIC whose oil and gas IT practice it acquired last month. Integration with SAIC may be completed in the June quarter, with revenue-contribution possibly beginning to reflect in the subsequent quarter. SAIC had annual revenues of $188 million or a quarterly run rate of $47 million.
March quarter results
For the quarter ended March 2011, Cognizant's revenues rose 49 per cent compared with a year ago, to $1.37 billion — $30 million lower than Wipro IT Services' $1.4 billion. This compares with the $207-million lead that Bangalore-based Wipro had over Cognizant in the quarter ended March 2010.
Significantly, Cognizant's March quarter revenues exceeded estimates given a quarter ago, by only $1 million. Net profit rose by 37 per cent to $208.3 million ($151.5 million).
In a conference call with analysts, the company's President and CEO, Mr Francisco D'Souza, said that the company's numbers reflected the uneven economic growth across the world, with North America performing better than Europe and the rest of the world.
For the first time, Cognizant's North America revenues crossed Infosys' in the March quarter — $1,070 million versus $1,020.5 million, respectively. Cognizant had crossed Wipro's North American revenues in the June 2009 quarter. Cognizant's North American revenues in the March 2011 quarter grew 5.6 per cent sequentially, while contributing to 78 per cent of total quarterly revenues.
Its Europe revenues grew slower at 1.5 per cent over the December quarter. The UK geography slumped 3.5 per cent while Continental Europe grew 11.7 per cent, both sequentially. Revenues from the world slumped about 2 per cent.
Mr D'Souza clarified that de-growth in the UK was due to IT work-related to Mergers & Acquisitions winding down in the banking and financial services (BFSI) space. It may be recalled that following investment banking firm Lehman Brothers' fall three years ago, the BFSI arena underwent consolidation that saw numerous financial institutions being acquired.
Annual guidance revised
Expecting growth momentum to continue in the rest of the year, Cognizant has revised its fiscal ending December 2011 revenue to be at least $5.925 billion, or a growth of 29 per cent over fiscal 2010 revenues. The earlier revenue estimates given in January this year were $5.79 billion or a growth of 26 per cent compared with 2010.
Net employee addition for the quarter exceeded 7,200 and the company ended the quarter with over 111,200 employees globally.
Pricing
In the same call with analysts, Mr Gordon Coburn, Chief Financial and Operating Officer, said that on a sequential basis, pricing was up over 2 per cent — both onsite and offshore. Many of the pricing increases agreed to with clients during the latter part of 2010 became effective during the first quarter, he said.
Customer base
Cognizant had a gross addition of 59 new customers during the first quarter and closed the quarter with 714 active customers.
During the quarter, the number of accounts that the company considers to be strategic increased by seven bringing the total number of strategic clients to 173, said Mr Coburn. (Cognizant defines such clients as those with capability to grow and yield between $5 million and $50 million in annual revenues.)
In 2010, each of the company's top ten clients contributed nearly $100 million in revenue, added Mr D'Souza.
During the March quarter, financial services represented 41.6 of the company's total revenue; healthcare represented 25.4 per cent; manufacturing, retail and logistics represented 20 per cent and the remaining 13 per cent from other service-oriented industries of communications, entertainment, media and high technology.
For the quarter, application management and application development were each approximately 50 per cent of revenue, said Mr Coburn.