Cognizant says demand is here to stay against Infosys and TCS's caution

Business

oi-Shoaib MD

By Shoaib Md

Published: Wednesday, August 3, 2011, 11:18 [IST]

Cognizant Technology Solutions Corporation, the U.S.-based IT company, continued its fast paced growth and gave forecast of a strong third quarter. This came around when many of the rival IT companies in Indian IT services have sounded caution over the upcoming slow-down in technology spending.

Discretionary development spending by Congnizant's clients have been growing, meanwhile the Indian IT players have raised a flag, showing concerns over economic uncertainties.

According to the news-agency, Reuters, Gorden Coburn, Chief Financial Officer has said that Cognizant's clients are spending on discretionary projects and that these projects are related to innovation and growing their own top line.

The company, Cognizant, expects its sales in 2011 to grow at least 32% meanwhile Wall Street estimates 30%.

One analyst was quoted by the news-agency as stating that Cognizant had invested heavily during the downturn and that is still benefiting the company.

The treat of global economic situation could affect the customer spending on the downside was resonated by India's second biggest software services provider, Infosys had warned it could face slow client spending. Tata Consultancy Services, the Indian software services giant has also flagged concerns about economic uncertainty. Wipro too had expressed similar view that uncertain economic environment had resulted in volatility in business. Although none of the three companies have explicitly stated that there were any delays in the IT spending decision making process at the customers end.

On the margin front, Cognizant has historically worked with lower margins compared to its rivals in order to gain market share. According to the statement by CFO Coburn, the company does not intend to change its strategy. He added that the margins of 19-20% were comfortable for the company.

Cognizant's June quarter's revenue at $1.49 billion, was more than the Wipro's, India's No.3 software services exporter, revenue of $1.41 billion.

VIEW: Perhaps it will be good idea to look at mid-cap companies in India and compare their valuations with that of large-cap IT peers.

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