The early alert was in the context of disappointing quarterly earnings from the world’s largest information technology (IT) service companies in the second quarter (December-December), which suggests that both the global and Indian IT industries could be difficult. Accenture follows a financial calendar from September to August.
“In recent weeks, we have seen levels of already significant uncertainty in the global economic and geopolitical environment, marking part of a part of the appeal of Accenture CEO Julie Sweet after the company graduates, marking a shift in our first-quarter earnings report in December,” said Julie Sweet, CEO of Accenture.
Accenture’s revenue in the first quarter fell 5.8% in turn to $16.66 billion, although it increased by 5.4% year-on-year. In the third quarter (March to May), the company expects revenue to be between $16.9 billion and $17.5 billion.
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Meanwhile, the company has not raised the upper end of its full-year growth guidance, reflecting its perception of the macroeconomic environment.
Accenture is expected to spend as much as $3 billion on fiscal acquisitions, meaning nearly half of this year’s expected growth.
Why income drops
Much of the decline in business in the second quarter was caused by U.S. government agencies and hospitals. The company also said its revenue will be affected by the Trump administration’s re-signation of federal contracts.
“It is known that the new (Trump) administration has clear goals to operate the federal government more effectively. Many new procurement actions have slowed down in the process, which negatively impacted our sales and revenue,” Sweet said. Last year, federal contracts constituted $64.9 billion in revenue of 8% or $5.2 billion in Accenture.
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Sweet added that the U.S. government has directed federal agencies to review contracts with the country’s 10 largest consulting firms, including Accenture Federal Services, and identify those unimportant tasks.
“While we continue to believe that our work for federal clients is crucial, we expect that as government priorities develop and these assessments continue to evolve, we expect uncertainty to continue to be uncertain.”
Phil Fersht, CEO of HFS Research, a tech consulting firm in Massachusetts, said Accenture is just cautious in the current turbulent business environment. “When business leaders wait for the current macro situation to calm down, the impact of tariffs and uncertainty delays some contract decisions,” he said.
India’s expectations
Accenture’s view echoes those of analysts who have marked uncertain macroeconomic conditions, especially in the context of the IT services industry in India.
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Over the past three weeks, four brokers – Morgan Stanley, Kotak Institutional Stocks, Motilal Oswal Financial Services and JM Financial – predicted that India’s $283 billion IT industry will grow slowly in the past 26 fiscal year.
This frustrating prospect is behind the high loan rates, geopolitical uncertainty and threats of additional tariffs by the U.S. by the New Donald Trump administration.
Accenture Dim Outlook of India’s five largest software service providers, including TATA Conservancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd and Tech Mahindra Ltd, is expected to win their fiscal 25-year earnings next month.
In particular, Accenture’s comments on federal uncertainty are expected to impact Nasdaq-listed cognitive technology solutions company, which acquired Belcan for $1.3 billion last June. Belcan acquires 40% of its business from a U.S. federal contract.
The sector that promotes Belcan growth may be affected as the U.S. Department of Efficiency (DOGE) government spending, led by Elon Musk, cuts government spending, the number of departments that promote Belcan growth may be affected.
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Highlights
Despite revenue uncertainty and decline, investors in the form of generating AI (AI) are a highlight.
Accenture received $1.4 billion in a quarter of new-generation bookings in February 2024, accounting for 6.7% of the overall order bookings of $20.9 billion in the quarter. In the same quarter, Accenture received $600 million in revenue from AI Gen Projects. So far, the company has raised its total orders for AI generation to $5.6 billion since September 2023.
For context, AI Gen’s total order bookings exceeded the fiscal 24-year revenue of Ltimidtree Ltd, the sixth largest software service company in India. Ltimindtree reported $4.3 billion in revenue last year.
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Accenture is the first software service company to state its Gen Gen ADEAL value. This is the opposite of a local IT service provider that has not yet clarified revenue or new technology confirmation orders.
