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Accenture: Price Under Pressure, Outsourcing Stronger than Consulting

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 […]

Written By: Jessica Davis

Jun 26, 2009

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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.

Accenture: Price Under Pressure, Outsourcing Stronger than Consulting

Jessica Davis

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