Accenture: Price Under Pressure, Outsourcing Stronger than ConsultingBy Jessica Davis | Print
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Technology outsource and consulting giant Accenture saw net revenues and net income fall in fiscal Q3, reporting pressure on price by clients looking to renegotiate existing contracts. In addition, Accenture executives say the outsourcing business grew stronger, overshadowing the formerly dominant consulting business.
Technology outsourcing and consulting giant Accenture’s (NYSE: ACN)
financial results fell very much in line with that of other technology
companies during this phase of the current recession—declines across the board,
but characterized as strong when considering the current economic environment.
For Accenture that has meant pricing has come under pressure for both systems integration services and outsourcing as clients are looking to re-evaluate existing agreements, Steve Rohleder, chief operating officer, told analysts during a conference call following the earnings announcement.
"We have also seen some pressure in the ERP area, but quite frankly the highest volume is in the existing contracts area," he said. "What that has done is pushed us to shift our resources in order to accommodate the price reduction to more of a higher level of off-shore mix."
Accenture reported fiscal Q3 net revenues of $5.15 billion, in line with guidance, but representing a 16 percent decline in U.S. dollars and a 4 percent decline in local currency compared with the same period a year ago. Q3 diluted earnings per share were 68 cents per share.
Net income came in at $444 million, compared with $469 million for the same period a year ago.
Accenture’s net revenues are also undergoing a shift from being dominated by consulting to being dominated by outsourcing—and that shift also changes the equation of when revenues are realized, according to Chairman and CEO Bill Green.
"As we see the bookings come in, certainly this quarter and last quarter, in the outsourcing business it is going to take a little while to convert those to revenue," Green said. "I haven’t seen any difference in terms of the velocity of opportunities coming through our pipeline this quarter. I do believe though we are seeing a shift primarily in both resources and products from consulting to outsourcing."
Green told analysts that Accenture’s strategy has been to have one foot in today and one foot in the future, and promised more news later this year around some new initiatives the company has under way.
Meanwhile, Green said, Accenture would combine its public service and health service business to drive growth, working on geographic expansions, and refocus energies around technologies that continue to show strong growth and profits, including cloud computing.
"Not only are we enhancing our core around this, but we are working with alliance partners to be the implementation partners for our clients as they move to next-generation computing," Green said.
New bookings for Q3 came in at $6.57 billion, with consulting bookings of $3.21 billion representing 49 percent and outsourcing bookings of $3.36 billion representing 51 percent.
For Q3, consulting net revenues decreased by 20 percent in U.S. dollars and 9 percent in local currency compared with the same period a year ago, totaling $2.95 billion.
Outsourcing net revenues fared a little better with a decrease of 9 percent in U.S. dollars and 3 percent in local currencies compared with the same period a year ago, totaling $2.19 billion.
Looking ahead, Accenture is forecasting net revenues for fiscal Q4 in the range of $5 billion to $5.2 billion. For the fiscal year, Accenture continues to target new bookings in the range of $23 billion to $25 billion.
Accenture says it has narrowed its range for net revenue growth for the full fiscal year and is now expecting revenue growth to be flat to slightly positive in local currency.