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Cognizant CEO: Company Benefited Again from Shift to Digital Services in Q4

Cognizant Technology Solutions once again saw growth in digital-related revenue during the fourth quarter (ended Dec. 31) as the company continued its shift to digital services and solutions, according to CEO Francisco D’Souza.

Digital technologies including artificial intelligence (AI), the Internet of Things (IoT), analytics, robotic process automation, cybersecurity and hybrid cloud have “become so integral to remaking business models and core processes that no enterprise can ignore them and still remain competitive,” he said Feb. 7 on an earnings call with analysts.

Digital-related revenue grew almost 30% for Cognizant in the fiscal year that ended Dec. 31 – “well above company average” and accounted for about 27% of total annual revenue, he said. Digital services also “generated above company average margins” in 2017, he said.

Cognizant, meanwhile, is making a major investment to train U.S. workers and students and end the “skills gap” that he said “threatens the competitiveness” of U.S. businesses. Citing data from the U.S. Bureau of Labor Statistics, he said that, by 2020, there will be a 1.4-million-person gap between software development jobs and qualified applicants to fill those positions in the U.S. 

“In today’s rapidly expanding digital economy, there are far more open jobs for technical work than there are trained workers to fill them,” he said. As part of the company’s new initiative, Cognizant formed a new non-profit foundation to support science, technology, engineering and math (STEM) and digital education and skills initiatives for U.S. workers and students, he said, adding the foundation is being established with an initial grant of $100 million.

The company added more than 6,000 U.S. citizens and permanents residents to its workforce in 2017 and, “over the next five years, we plan to hire at least 25,000 U.S. workers,” D’Souza said.
Cognizant last year trained “over 100,000 associates [in] high-end digital capabilities in areas such as data science, design thinking, cybersecurity,” IoT, AI and automation, Rajeev Mehta, Cognizant president, told analysts. This year, the company will “continue our substantial investment in training our associates,” he said.

Cognizant’s fourth-quarter revenue grew 10.6% from a year earlier, to $3.8 billion. But the company swung to an $18 million loss (3 cents a share) from a $416 million profit (68 cents a share) as the result of a one-time incremental income tax expense of $617 million that it said was related to the recently-passed U.S. Tax Cuts and Jobs Act.

Revenue in the company’s communications, media and technology business jumped 19% in Q4 from a year earlier, to $494 million, and accounted for 12.9% of its total revenue in the quarter, it said. Products and resources revenue grew 13.7% to $782 million (20.4% of total sales), while healthcare revenue increased 11.9% to $1.1 billion (29.4% of total sales) and financial services revenue grew 5.4% to $1.4 billion (37.3% of total sales).

Cognizant expects to report revenue of $3.88 billion-$3.92 billion for the first quarter of fiscal 2018, it said. Cognizant shares were trading more than 4% higher at $76.91 the afternoon of Feb. 7.