Gartner expects Cognizant Technology Services to be the "emerging vendor most likely to challenge vendors with the largest revenue base and expects the company to become a leader through differentiation, rather than being a follower in commodity-based (low value add) categories of service," in a newly published vendor rating.
Gartner has also complimented Cognizant on the brand equity it enjoyed in the market.
"Given Cognizant's smaller size, its recognition in many large bids as a leading vendor is a testament to some of its concentrated marketing investments and focus. Although not a household name Cognizant has achieved mind-share among important buyers particularly in its targeted vertical industries," the research report said.
Cognizant has been rated on an overall basis as "positive," the highest rating awarded by the leading IT analyst firm. The ratings were based on extensive research including numerous customer interviews and site visits in India by two of Gartner's seniormost analysts, Rita Terdiman and Frances Karamouzis.
On Cognizant's strategy, the Gartner report points out that, "Unlike many Indian ESPs (enterprise service providers), Cognizant does not respond to every request for proposal or expend lots of business development effort for commodity-based deals. Cognizant tries to find customers with which its relationships has the potential to be $5 million to $30 million annually."
The analyst report also mentioned that Cognizant needs to increasingly differentiate itself from Indian top-tier competitors and break out of commodity-based pricing model that is prevalent.
"Cognizant is a recognised premium player in the offshore IT Services Industry and is growing faster than its offshore peers because our business model is built for the new world of large-scale offshore outsourcing," said Kumar Mahadeva, chairman and CEO of Cognizant reacting to the Gartner report.
"Through our industry leading 4th generation services model we partner with clients on a process we call 'transforming while performing' to drastically cut IT and business process costs, while better aligning the clients' IT portfolio with business needs."
In the quarter ended June 30, 2003, the Nasdaq-listed Cognizant posted a 61 per cent increase in revenue to $87.4 million compared with $54.4 million for the same period last year.
On a sequential basis, Cognizant saw an industry best 17 per cent growth in revenues, while operating margins for the quarter was 19.6 per cent compared with 19.5 per cent for the immediate past quarter and 19.7 per cent in the year-go period.
Cognizant's net profit for the second quarter increased by 56.97 per cent to $13.5 million, or $0.20 per diluted share, compared with $8.6 million, or $0.14 per diluted share (on a split-adjusted basis), in the second quarter of 2002.
Cognizant also announced that it had closed its acquisition of Aces, a specialist in CRM solutions. Now fully integrated with Cognizant's operations, Aces accounted for $2.3 million of revenue during the quarter.
"We further stepped up discretionary investment in our sales and marketing organization, which will continue to be a key strategic advantage for Cognizant as the industry evolves and grows," Kumar Mahadeva, chairman and CEO, said.
"Our record of strong repeat business continues with approximately 83 per cent of our revenue from clients who have been working with us for at least a year," Gordon Coburn, chief financial officer, said.
"As we continue to strengthen and grow relationships with our clients, we have developed a strong recurring revenue base which gives us greater visibility and confidence in our future."
Cognizant has revised its revenue guidance upwards for the full year yet again. For 2003, based on the strong demand for offshore services and favorable experience on ramp-up rates, Cognizant expects revenue of at least $354 million. This is $24 million more than what it had expected a quarter ago.
"We are comfortable with the ability to deliver revenue in the third quarter of at least $94 million. We continue to have significant revenue visibility owing to our high level of recurring revenue and the long-term nature of our customer relationships. In fact, today we have customer commitments for well over 90 percent of our third quarter revenue guidance," Mahadeva said during the earnings call.
"During the remainder of the year, we intend to continue to closely monitor our spending and expect our operating margin to remain in the range of 19 to 20 percent-in-line with our historic margin level and prior guidance," he said.
"We expect to add a substantial number of employees during the second half of 2003 and finish the year with between 8,000 and 9,000 staff worldwide," Mahadeva said. At present Cognizant has 6,700 employees.
