Accenture Has Survived the India Onslaught Well

Based out of Bermuda, one first wonders if Accenture is a fly-by-night. But this is hardly the case. The former Andersen Consulting, tainted by Enron, is now a $20 billion strong management consulting, technology services, and outsourcing company. For Accenture, consulting represented 60% of revenue ($11.86 billion) and outsourcing 40% ($7.84 billion). Despite the current market jitters, CEO Bill Green posits that Accenture can endure economic headwinds by focusing on solving long-term strategic issues that clients face.

The approach has continued to work. Accenture has grown despite economic uncertainty due to diversification across verticals including technology, government, financial services, and others. The Americas and Europe/Middle East/Africa currently represent 45% of revenue each, while Asia-Pacific makes up 10%. Q4 revenue jumped 29% to $5.11 billion along with annual revenue, which climbed 18% to $19.7 billion (a new record). Part of this was based on new 2007 bookings totaling $4.9 billion for the year, slightly lower than 2006. Net income in Q4 dropped to $316.8 million versus $346.4 million YoY, adjusting for a past hefty tax benefit. Financial services represent 22% of revenue in Q4 and the Communications and High tech sector accounted for 24% of revenue, the remainder being made up by other verticals.

Based on current performance, Q1 revenue for 2008 is expected to keep increasing. For the full year, the company expects revenue growth between 9 to 12 percent. The company said it expects 2008 Q1 revenue to range from $5.4 to $5.6 billion versus $4.75 billion in 2006. Accenture’s fiscal first quarter ends Nov. 30.

In October, Accenture announced a $3 billion share buyback plan (it was $1.5 billion in March). The company generated $2.27 billion in cash from operations for the 2007 fiscal year. Accenture blames the cash “problem” on better efficiencies in billing and collections. Needing additional places to park the extra money, Accenture also boosted its annual dividend by 7 cents to 42 cents, a 20% increase over the previous dividend (35 cents).

Businesses’ inability to understand and use IT has been a boon for consultants, and Accenture is looking to double its consultant count as a result. Due to the continuing growth, Accenture plans to expand the breadth and depth of its management consulting services globally, in developed markets as well as in rapidly evolving markets, but technologically and geographically. Part of this has been done via acquisitions in 2007.

For example, grabbing Corliant provided specialization in advanced Internet Protocol networks . IP-based networks allow companies to provide voice, data, multimedia and other services through a single technology infrastructure. In addition, Corliant also provides expertise in Cisco’s network technologies and services. There is clearly huge activity as enterprises become more and more “communication efficient”, leveraging online collaboration to the fullest. Accenture is positioning to gain from this trend.

A second acquisition added Gestalt, which includes enabling interoperability among large computer systems and devising and running complex simulation models. The Defense Department and armed forces are the major clients, but Gestalt also does work for large power grid operators.

Finally, H.B. Maynard and Co. Inc., a training firm provided Accenture workforce-productivity-management solutions to help companies improve their performance and market competitiveness. This acquisition helps Accenture further develop its management consulting practice, particularly around HR with retail stores and distribution clients.

So is Accenture being weakened by competition, particularly with the rapid growth of peer Indian consulting companies? Not really. In fact, those same companies, like Satyam for example, are instead trying to copy Accenture just to hold onto their own staff and reduce attrition levels, as well as move up the value chain into more strategic projects. Accenture, on the other hand, is positioning itself to take advantage of struggling corporations looking to improve their bottom line through consulting and outsourcing, learning from the bag of tricks of its Indian competitors.

Accenture’s performance has not been reflected in the share price floundering between $37-$43 for months (market cap of $21.8 billion). In fact, this week, the stock dropped further to $35.80 hit by Cognizant’s soft forecasts that took the sector down. Frankly, Accenture should do just fine given that outsourcing and offshoring are major trends that are pretty much unstoppable, so I would treat the drop as a buying opportunity.

Longer term, Accenture, like Infosys, should also think of non body-shopping business models.