Reports: Cognizant Could Lay Off 6,000-10,000 Employees As Part of Digital Services Shift
Cognizant will likely slash between 2.3 percent and 5 percent of its workforce as automation makes many of the solution provider's lower-end IT jobs redundant.
The Teaneck, N.J.-based company, No. 7 on the CRN Solution Provider 500, is expected to move forward with between 6,000 and 10,000 job cuts as the company shifts its focus from traditional to digital IT services, according to The Times of India and the Business Standard.
Cognizant did not immediately respond to CRN's request for comment, but told The Times of India and the Business Standard that resizing the company's employee base is part of its standard practice. At the end of 2016, Cognizant employed more than 260,000 people globally, including 47,500 in North America and 180,000 in India, according to a filing with the U.S. Securities and Exchange Commission (SEC).
"As part of our workforce management strategy, we conduct regular performance reviews to ensure we have the right employee skill sets necessary to meet client needs and achieve our business goals," a Cognizant spokesperson said in a statement. "This process results in changes, including some employees transitioning out of the company."
Cognizant's stock climbed $0.50 (0.85 percent) to $59.06 in trading Monday afternoon. The layoff plans were reported before the market opened Monday.
The solution provider laid off between 1 percent and 2 percent of its workforce a year ago, and roughly 1 percent of its workforce two years ago, according to The Times of India. But these moves are slated to go well beyond Cognizant's routine late-March cuts of the bottom 1 percent of their workforce for non-performance.
"We will leverage our scale to improve cost in 2017 and 2018 through cost optimization efforts and intelligent sourcing," said Karen McLoughlin, Cognizant's chief financial officer, during the company's February earnings call. "And we will aggressively use automation to drive the optimization of traditional offerings such as application, infrastructure, and process services."
Cognizant reached an agreement last month with activist investor Elliott Management to boost its non-GAAP operating margins from 19.5 percent in 2016 to 22 percent by 2019 by streamlining its cost structure, improving operational efficiency and aggressively employing automation to optimize traditional services.
The company's non-GAAP operating margins had fallen from 20.2 percent in 2014 to 19.7 percent in 2015 to 19.5 percent last year due to increases in compensation, benefit and certain professional services costs, Cognizant said.
"Agile development and the pervasive influence of technology increases the value of co-location and a consultative approach," said Cognizant CEO Francisco D'Souza during the company's February earnings call.
Cognizant plans to substantially expand its workforce in the United States and other local markets around the world where it operates, D'Souza said last month.
Cognizant also committed to Elliott that, by 2019, the company would be returning three-quarters of its U.S. free cash flow to shareholders through $3.4 billion worth of share repurchases and dividends. As part of that effort, Cognizant on Thursday announced the launching of a $1.5 billion share repurchase program.
After several years of double-digit top-line growth, Cognizant's 2016 sales grew to $13.49 billion, up just 8.6 percent from $12.41 billion in 2015. Net income fared worse, falling to $1.55 billion in 2016, down 4.4 percent from $1.62 billion the year prior.