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Leadership churn, ransomware attack hit Cognizant's healthcare vertical

The segment accounts for over 25 percent of the company’s overall revenue. Analysts say there is no need to panic as tech spending has restarted, and a company of Coginzan’t size will be able to bounce back

August 19, 2020 / 01:39 PM IST
 
 
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Cognizant’s healthcare business, which accounts for over 25 percent of its overall revenue, has been declining, though marginally, over the last three quarters.

In contrast, its peers have not only gained share in this space but, for some, it is the only vertical that has witnessed growth, despite COVID-19 disruptions.

Cognizant, according to sources and analysts, had to face management realignment and a maze of ransomware attack, apart from COVID-19.

A look at Cognizant’s growth

Cognizant clocked $4 billion in revenue for the quarter ending June 2020, a 3.4 percent rise year-on-year. In its commentary, the company said that the ransomware attack impact was about 90 basis points or 0.9 percent.

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The company follows the calendar year for its fiscal.

Its healthcare vertical accounted for about $1.157 billion in revenue for the June quarter, a decline of 3 percent, compared to $1.194 billion in March. For the quarter ending December, the company’s revenue from the vertical was $1.221 billion. It was a quarter when the company had just revived from the slump it has been witnessing, aided, in part, by the acquisition of Irish life sciences firm Zenith.

On a quarter-on-quarter basis, for the June quarter, HCL Tech’s healthcare segment grew 1.9 percent and Infosys’s reported a 7.9 percent growth. TCS, in its commentary, said that Life Sciences was the only vertical that witnessed growth, whereas its other verticals declined.

For Wipro, whose healthcare segment accounts for 13.5 percent of revenue, growth was flat.

Cognizant fighting twin battles

The company saw too many churn in leadership since new CEO Brian Humphries took over in April last year. Kaushik Bhaumik, who was heading healthcare in Cognizant, quit in July. He was succeeded by Jeff Heenan-Jalil, a former Wipro executive. He was sacked in December 2019 over compliance issues, according to media reports.

Chunky Satija, Practice Director – Healthcare, Everest Group, an IT consultancy firm, said it was an impediment, considering that Cognizant executives have developed deep relationship with consumers, and, as they left, the impact was felt.

The ransomware attack in April and COVID-19 did not help the situation either. Cognizant’s healthcare clients can be divided into healthcare payers, which includes insurance firms, hospitals, medical equipment manufacturers and life sciences firms.

While the life sciences segment is growing in double digits and is a growth driver, COVID-19 hit other sectors. Healthcare providers paused long-term digital investments as elective surgeries, which were revenue generators, were postponed. Clinical trials were put on hold.

Even in those areas where investments were taking place, such as in cloud migration, competition has increased as vendor consolidation gained momentum. A senior executive, on the request of anonymity, pointed out that the company lost some of its businesses from its existing customers as its peers gained market share due to the ransomware attack and management realignment.

Cognizant did not respond directly to queries but pointed at the management commentary on healthcare for Q2. Karen McLoughlin, CFO, said in the earnings call that though the healthcare revenue declined in low single digit, its deal pipeline is better than a year ago. The company has signed new logos and is seeing software licence sales.

How is growth looking for Cognizant?

According to analysts, growth should pick up for Cognizant in the coming quarter. Satija of Everest said that the pause in tech spending is ending, albeit slowly. Though Cognizant might have lost some share of business, for its size, it should not be huge and should recover from September or January next year.

In addition, life sciences are a significant growth driver for the company, both organically and inorganically, in Europe due to Zenith.
Swathi Moorthy
first published: Aug 19, 2020 01:27 pm

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