Cognizant forecasts slowest revenue growth in 14 years

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Cognizant forecasts slowest revenue growth in 14 years

IT services provider Cognizant Technology Solutions forecast its slowest quarterly revenue growth in 14 years, adding to mounting worries about clients keeping a tight lid on technology spending.

Shares of the company, which also reported its first revenue miss in six quarters, fell as much as 8.7 percent to a year-low of US$53.46 in morning trading on Monday US time.

Cognizant, whose rivals include Indian IT services firms such as Tata Consultancy Services and Infosys, said the financial services sector was off to a slow start this year.

"They're certainly slowing down some of the discretionary spend as well as looking for ways to optimise even on the run-the-business activities through efficiency and more effectiveness," president Gordon Coburn told Reuters.

Coburn said the sector was in a challenging environment due to volatility in the markets.

Revenue in the financial services business, the company's biggest, rose 16.6 percent to US$1.31 billion in the quarter ended 31 December.

Growth in healthcare also slowed this quarter.

Revenue in the division rose about 23 percent to US$951.9 million, the slowest in five quarters, and accounted for about 30 percent of total revenue.

A wave of M&As among US health insurers is set to reduce the number of national players to three from five. This has created uncertainty, as the companies pause spending while they work through the deals.

However, Coburn said the business was likely to see significant strength around mid-2016 with a strong pipeline of large deals.

The healthcare unit has led Cognizant's growth in the past year, driven by its US$2.7 billion acquisition of US healthcare IT services provider TriZetto Corp and the implementation of the US Affordable Care Act, or Obamacare.

Cognizant said it expects adjusted profit of between 78-80 cents per share and revenue of US$3.18 billion to US$3.24 billion for the three months ending March.

The top end of the revenue range indicates an 11.34 percent growth in the current quarter from a year earlier, its slowest since the March quarter of 2002.

Analysts on average were expecting a profit of 81 US cents per share and revenue of US$3.32 billion for the first quarter, according to Thomson Reuters I/B/E/S.

Cognizant's revenue increased 17.9 percent to US$3.23 billion in the fourth quarter.

Excluding items, the company earned 80 US cents per share.

Analysts on average had expected a profit of 78 cents US per share and revenue of US$3.24 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Abhirup Roy in Bengaluru; Editing by Sriraj Kalluvila)

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