Bengaluru: Accenture Faces Challenges Amid AI Surge
Accenture Plc is preparing for potentially turbulent times ahead as artificial intelligence (AI) gains unprecedented traction among its clientele. The consulting behemoth conveyed that, while AI holds vast promise, its tangible benefits are lagging, prompting the company to consider job reductions.
“There is a clear consensus that advanced AI has swiftly captivated the attention of CEOs, C-suite executives, and board members, more rapidly than any tech evolution witnessed in several decades,” remarked Julie Sweet, chair and CEO of Accenture, during a post-earnings conference with analysts.
“Despite this, value realization has not met expectations for many, and widespread enterprise adoption remains sluggish, particularly outside of digital-native organizations.”
As Accenture maneuvers through the uncertainties surrounding generative AI, Sweet indicated that the company is mostly insulated from recent shifts in U.S. visa regulations introduced by former President Donald Trump.
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“The H-1B situation is relatively trivial for us, as only about 5% of our workforce in the U.S. holds H-1B visas, and they possess the specialized expertise required for our clients. Hence, this is not a significant hurdle for Accenture,” Sweet affirmed.
On Friday, Trump enacted an executive order mandating companies to pay $100,000 annually for each new foreign worker under the H-1B visa, a substantial increase from the previous fee of around $1,000.
The White House clarified the following Sunday that this one-time charge would apply solely to new applications and not to current visa holders. H-1B visas permit highly skilled non-immigrants to work temporarily in the U.S.
Accenture concluded its financial year from September to August with a revenue of $69.7 billion, marking a 7% increase from the previous year. This equates to approximately $4.78 billion in added revenue.
Notably, Accenture by itself accrued more revenue over the year than the cumulative total of India’s ten largest IT firms, which reported around $3.1 billion for their fiscal year ending in March.
The management stated that this financial performance emerged against a “challenging macroeconomic backdrop that showed no signs of improvement over FY24.” Half of Accenture’s revenue is derived from the U.S., its largest market.
Looking ahead, the company anticipates a deceleration in growth, forecasting revenue growth of 2-5% in local currency terms for FY26.
“In terms of discretionary spending, our top-end projection assumes no change, while the bottom end accommodates potential deterioration,” expressed Angie Park, Accenture’s Chief Financial Officer.
Investor sentiment has been subdued following the company’s performance, with shares declining 2% to $234.26 by 9:54 PM IST on the New York Stock Exchange.
During the June to August period, Accenture reportedly reduced its workforce by 11,000, concluding the year with 779,000 employees. The advent of AI is expected to precipitate further job cuts, despite the company’s belief that it will ultimately increase its headcount on a net basis in the current fiscal year.
“We aim to make necessary adjustments swiftly, as we lack a viable pathway for reskilling, allowing us to bring in the expertise we critically need,” Sweet elaborated.
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In light of these challenges, the company has initiated a six-month business optimization program, anticipating costs of $865 million during this duration, mainly associated with severance linked to this talent realignment.
This initiative also includes asset impairment costs, primarily related to the divestiture of two acquisitions no longer in sync with the company’s strategic aims, as stated in its earnings announcement.
Consequently, Accenture expects to achieve over a billion dollars in savings, which it plans to reinvest in both its business and workforce.
In India, leading IT service provider Tata Consultancy Services recently implemented a 2% workforce reduction, laying off 12,200 employees in middle and senior management.
TCS cited these changes as part of “strategic initiatives on multiple fronts,” which encompass investments in new technologies, entering new markets, scaling AI deployment, enhancing partnerships, and realigning workforce models.
Accenture reported Gen AI bookings totaling $5.9 billion during the year, bringing its cumulative Gen AI orders to $8.9 billion since September 2023.
These orders constitute nearly 7.3% of its overall order bookings, which reached $80.6 billion for the year. Notably, the firm’s revenue tied to Gen AI for the year amounted to $2.7 billion.
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Accenture stands as the first firm in its sector to delineate the value of its Gen AI contracts, while homegrown Indian IT service providers have yet to disclose their revenues or confirmed orders linked to this burgeoning technology.
Accenture’s cautious forecast adds another layer of uncertainty for India’s five major software service providers—Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltd, all of which are poised to report their quarterly earnings next month.
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