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Cognizant Sees Dramatic Growth, Outlines Exec Changes

Second-quarter earnings help propel the IT services company into the coveted No. 4 ranking among outsourcers.
Cognizant Technology Solutions released strong second-quarter earnings Wednesday and also announced that several of its top executives will be moving up a rank at the beginning of 2007.

Financial and technology analysts say the management succession plan is aimed at helping the IT service provider keep up with its dramatic growth.

"They're really good, and they continue to outperform," says Frances Karamouzis, vice president of research at Gartner. "They came from behind with a smaller [customer] base, and slowly but surely they've consistently had higher growth rates and more aggressive growth."

Cognizant said its second-quarter revenue increased to $336.8 million. That's up 59% from the same period a year ago, and up 18% from the first quarter of this year. Net income for the second quarter was $55.1 million, compared to $36 million in the second quarter of 2005.

Gordon Coburn, executive vice president and CFO of the Teaneck, N.J.-based company, says Cognizant is seeing some dramatic growth, adding that the company just increased its growth revenue expectations for Wall Street to at least $1.37 billion for the year. That would add up to 54% growth for 2006. The company started the year with expectations of $1.26 billion, so the latest figures show an increase of $110 million. Coburn also noted that so far this year the company has gone from 24,000 employees to 31,000, and he expects to finish the year with more than 36,000 employees.

Seventy-five percent of Cognizant's employees are based in India, according to Coburn, with 20%, or 6,000, based in the United States.

Moshe Katri, a managing director at Cowen and Company LLC, says Cognizant is doing well focusing on the so-called late adopters to the offshoring trend. He says health care, manufacturing, retail, and some financial services sectors are new to the movement, and Cognizant has focused on ushering them into the market.

"If you focus on the late adopters, you focus on those verticals with low penetration so you can grow faster than your competitors, which is what they've been doing for three to four years," adds Katri.

Gartner's Karamouzis says Cognizant's strong numbers have moved the company up the ranks of the top offshoring companies out there. Tata Infotech is in the top spot, with Infosys Technologies and Wipro Technologies coming in right behind it. Cognizant, according to Karamouzis, now moves into the coveted fourth spot.

And that kind of growth and movement in the industry is the main push behind the company's succession plan.

Under the plan, which goes into effect Jan. 1, 2007, Lakshmi Narayanan, Cognizant's current president and CEO, will become vice chairman of the board of directors. Francisco D'Souza, the current chief operating officer, will move up and take the reigns as the new president and CEO; he also will become a member of the board. Also on the move is Coburn, who will be promoted to chief financial and operating officer.

In other movements, Chandra Sekaran, an executive officer of the company since 2004, has been promoted to president and managing director of Global Delivery, overseeing the company's development operations around the world. Rajeev Mehta has been promoted to chief operating officer of Global Client Services, taking on Cognizant's sales, business development, and client relationship management.

"We're trying to stay ahead of the curve in managing our growth," says Coburn, noting that Narayanan will move from focusing on the day-to-day operations of the business to having a more external focus. "Everyone is moving up one level."