February 13, 2009 / 12:03 PM / 11 years ago

UPDATE 3-Cognizant Q4 profit meets expectations; sees weak Q1

* Q4 EPS $0.38 in line, revenue up 26 pct

* Sees Q1 rev at least $735 mln vs. est. $746.6 mln

* Sees 2009 EPS at least $1.54 vs. est. $1.59

* Sees 2009 rev at least $3.1 bln vs. est. $3.07 bln * CEO: Sees weak start to ‘09, modest pick-up in Q2 (Recasts, adds comments, details, share movement)

By Bijoy Anandoth Koyitty

BANGALORE, Feb 13 (Reuters) - IT service provider Cognizant Technology Solutions Corp (CTSH.O) reported a higher quarterly profit that was in line with analysts’ expectations, but projected a weak start to 2009, primarily citing elongated client budget cycles.

Shares of the company, which rose as much as 6 percent earlier in the day were up about 3 percent in afternoon trade.

Some of the banking and financial services clients that merged together are aggressively eliminating duplicate systems which Cognizant had been previously supporting, Chief Exeutive Francisco D’Souza said in a conference call with analysts.

S&P Equity research cut the stock of Cognizant to “hold” from “buy” and said it sees lower spending from the banking and financial services verticals, which account for about 50 percent of Cognizant revenue.

Cognizant is starting to see some softness in pricing as it entered the first quarter, with clients struggling to finalize their budgets, D’Souza said.

The company, however, expects a modest pick-up beginning the second quarter, as it sees a “stream of projects” that supports its assumption of a return to sequential growth in the quarter, he said.

The company expects to see stability in its overall business and also in the key financial services segment by the second quarter, D’Souza told Reuters in an interview on Friday. [ID:nWNAB2802]

“We think fourth-quarter results and 2009 guidance should alleviate demand concerns,” JP Morgan analyst Tien-tsin Huang wrote in a note to clients.

Huang said Cognizant could be offering price discounts to its customers in exchange for higher volume, which is consistent with commentary from industry peers such as Infosys Technologies (INFY.BO) INFY.O and Accenture Ltd (ACN.N).

Cognizant reported fourth-quarter earnings of $112.3 million, or 38 cents a share, compared with earnings of $96.3 million, or 32 cents a share, a year ago. Revenue rose 26 percent to $753 million. [ID:nWNAB2521]

Excluding items, it earned 41 cents a share.

Analysts on average were expecting earnings of 38 cents a share, including items, on revenue of $742.1 million, according to Reuters Estimates.

For the first quarter, the company forecast earnings of 37 cents to 38 cents a share, on revenue of at least $735 million.

Analysts were expecting earnings of 38 cents a share, on revenue of $746.6 million.

The analyst said the first-quarter forecast further firms up the view that the March quarter is likely to be the weakest quarter of the economic cycle for offshore IT services firms.

Shares of Cognizant were trading at $21.30 in afternoon tade on Nasdaq. (Reporting by Bijoy Koyitty in Bangalore; Editing by Jarshad Kakkrakandy)

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