In what signals turbulent times ahead for the Indian IT sector, US-based IT services firm Accenture saw its bookings for the third quarter fall by 22 percent sequentially to $17.2 billion, after the company saw record bookings of $22.1 billion last quarter. Accenture said its small deal wins were lower than expected.
This comes at a time when several companies have spoken about uncertainty, as well as cuts in discretionary spending and delays in bookings as well. However, the results for the quarter did beat analyst estimates.
The company also saw its headcount reduce by roughly 6,000 people from last quarter, a part of which is the impact of the 19,000 layoffs announced last quarter. The company’s headcount now stands at 7.32 lakh.
Accenture’s fourth-quarter guidance is also below expectations. For the fourth quarter, Accenture’s revenue guidance is at $15.75-16.35 billion, an increase of 2 percent to 6 percent in local currency year-on-year.
It reported revenue of $16.6 billion for the quarter ended May 30 , up from 4.7 percent sequentially. Accenture follows a September-August financial year, and over 3 lakh of its 7.32 employees are based in India. With this, Accenture has met its revenue guidance for the quarter of $16.1-16.7 billion.
Accenture is seen as a bellwether for the Indian IT sector, and gives an indication of how Indian IT companies’ numbers are likely to fare in the quarter ending June 30.
Accenture saw new bookings in Consulting of $8.6 billion and $7.8 billion in managed services.
Additionally, its guidance update for the full year too may raise signs of concern of worsening stress as clients pull back on spending, as Accenture has reduced its guidance at the upper end, now forecasting it to be at 8-9 percent. It had narrowed the upper end last quarter from 11 percent to 10 percent.
The company’s voluntary attrition has increased from 12 percent to 13 percent on a quarterly annualised attrition basis.
The company saw revenue in the Communications, Media & Technology (CMT) segment decline 8 percent year-on-year, while financial services was up 5 percent, health and public service up 14 percent, products was up 6 percent and resources was up 12 per cent.
Chief Executive Officer Julie Sweet told analysts that the big difference in expectations from last quarter and where they ended up in terms of revenue in consulting and managed services was because small deals came in lower than expected. “We saw that extend to Europe and growth markets, in strategy and consulting and system integration domains,” she said.
The CEO added that there are extensions in small deals, but it’s the newer small projects where they are facing hurdles. “While at the same time we continue to have very strong bookings and interest and a huge opportunity in transformation,” she said.
Sweet said that clients are pulling back on smaller projects while focussing on bigger ones, which, she said, converts to revenue differently.
“Our clients are kind of crawling back on the small stuff, and doing the bigger (projects) which obviously converts to revenue differently,” she added.
Chief Financial Officer KC McClure said that the revenue guidance of 2-6 percent for the next quarter reflects some improvements in small deal performance at the upper end, while the bottom-end allows for some further deterioration. “In our overall range of 2-6 percent, we do allow for CMT to get a little bit worse,” she said.
Analysts had expected a tough road ahead for Indian IT particularly after guidance was cut by EPAM Systems earlier this month, amid a worsening macroeconomic environment, with no signs of pickup in the months of April and May either. Analysts said that the demand weakness across the sector was expected to intensify, with deferrals, halts and cancellations of projects with no green shoots so far.
Last quarter, Accenture had said that it would be cutting 19,000 jobs — or 2.5 percent of workforce — in 18 months, including over 800 of its 10,000-plus leaders as a manner of slashing its structural costs. Towards this end, the company had expected to incur $1.2 billion in employee severance and other personnel costs — $500 million in FY23 and $700 million in FY24. Of this, during the quarter ending May 30, the company recorded business optimisation costs of $347 million, primarily pertaining to severance.
The company’s voluntary attrition has increased from 12 percent to 13 percent on a quarterly annualised attrition basis. It’s utilisation remained high at 91 percent, compared to its Indian IT peers.
“We proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services and solutions, given that compensation costs are the most significant portion of our operating expenses,” the company said.
Accenture recently announced that it would be investing $3 billion over three years into its data and AI practice over the next three years, and also add roughly 40,000 people to the vertical.