Cognizant to lay off 3,500 non-billable corporate personnel

IT major Cognizant, on Thursday, said it will lay off 3,500 employees, or approximately 1 per cent of its workforce, as it sees revenues slowing down in 2023. The company will also reduce its real estate costs by eliminating 80,000 seats and 11 million square feet in large cities in India.

The affected employees will primarily be non-billable and corporate personnel, Cognizant informed in response to queries raised by DH. The company however did not share any details about which geographies the lay-offs will happen and from when.

This comes after tech giants including Amazon, Accenture, Microsoft, and Twitter have laid off employees on the back of inflationary pressures, global economic recession and bleak outlook.

Cognizant has initiated a 'NextGen' programme aimed at simplifying its operating model, optimising corporate functions and consolidating and realigning office space to reflect the post-pandemic hybrid work environment.

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"Our drive for simplification will include operating with fewer layers in an effort to enhance agility and enable faster decision-making. The company expects savings generated by the program to help fund continued investments in people, revenue growth opportunities, and the modernisation of office space," a company statement informed.

In connection with the program, the company expects to record costs of approximately $400 million with approximately $350 million of such costs anticipated in 2023 and approximately $50 million in 2024.

Some experts see this move as a self-correction from the bloated workforces created during the pandemic.

“Tech companies are going through a re-calibration of their growth goals. The pandemic-induced whiplash of digitization is now giving way to demand normalization and this is the primary driver of the reset of tech organisation," said Hardeep Singh, President, of Right Management India, part of ManpowerGroup India.

While others say companies are looking to make a majority of their processes tech-driven and therefore, are focused on the sought-after new-age tech skills.

“New leadership of a firm will invariably bring fresh perspectives and ideas,” said Aditya Narayan Mishra, Chief Executive Officer, HR Services company CIEL HR. “Hybrid work mode is gaining acceptance, innovative tools like ChatGPT are emerging and roles like AI, and Data Analytics are gaining prominence. Companies will consider reconfiguring their office spaces to prioritise collaboration and networking, as the modern workplace increasingly serves as a hub for brainstorming and creative thinking. The company seems to be taking the lead in upgrading its workspace and processes to improve efficiency during the ongoing economic slowdown,” he added.

Cognizant today reported a 3 per cent year-on-year (YoY) rise in its net profit to $580 million in the March quarter of FY23. However, the company reported a 0.3 per cent YoY decline in its revenue which stood at $4.8 billion in the quarter under review, beating Street expectations of $4.74 billion. On a sequential basis, revenue fell 0.7 per cent while profit grew 11.3 per cent.

"We were pleased to deliver first-quarter revenue above the high-end of our guidance range and strong free cash flow that supports our capital allocation priorities," said Jan Siegmund, Chief Financial Officer. "This reduction in real estate costs is net of investments to expand our real estate footprints in smaller cities, primarily in India in support of our hybrid work strategy," Cognizant added.

The company also reported record 12-month bookings of $25.6 billion. In the first quarter of FY23, it witnessed a booking growth of 28 per cent year-over-year. The company's operating cash flow stood at $729 million and free cash flow stood at $631 million. It expects to return around $1.4 billion to shareholders through share repurchases and dividends in 2023.

Full-year 2023 revenue is expected to be $19.2 - $19.6 billion, or a decline of 1.2 per cent to a growth of 0.8 per cent, or a decline of 1.0 per cent to a growth of 1.0 per cent in constant currency.

In the IT industry, Cognizant's margins are among the lowest at 14.6 per cent. The company anticipates an adjusted operating margin of 14.2-14.7 per cent for the full year.