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Is Accenture On Cisco’s Radar?

Posted on Tuesday, Oct 6th 2009

M&A activity has picked up greatly in tech, including in services. Xerox announced the acquisition of outsourcing firm Affiliated Computer Services Inc., and Dell announced its acquisition of Perot Systems. Many believe that such mergers will soon threaten Accenture’s (NASDAQ:ACN) foothold in the services segment. Will it?

Meanwhile, Accenture’s Q4 revenues remained sequentially flat at $5.15 billion but slipped 14% over the year and 7% over the year in local currency terms, marking the third consecutive quarter of falling revenues. This is the longest period of falling revenues since Accenture’s IPO. EPS for the quarter came in at $0.63, a decrease of $0.04 from the previous year. Analysts were expecting revenues of $5.1 billion with EPS of $0.62.

As customers prefer cost-saving solutions to new infrastructure projects, curbed technology budgets have driven a 19% fall in consulting revenues to $2.91 billion. Outsourcing revenues of $2.23 billion fell 7% in dollar terms over the year.

For the fiscal, revenues of $21.58 billion fell 8% in dollar terms but remained flat in local currency. EPS of $2.68 grew by $0.03 over last year. New bookings for the year stood at $23.90 billion of which $5.54 billion bookings were part of the fourth quarter. Meanwhile, the company increased its annual dividend by 50% to $0.75.

It is not only the Indian outsourcers that are working to improve utilization rates to enhance performance; Accenture is following a similar strategy. Utilization for the quarter improved to 86% compared with 84% recorded a year ago. Overall, for the year, Accenture’s utilization levels remained flat at 84%. The company is also benefiting from stabilizing attrition levels. In Q4, attrition fell to 10% in the quarter compared with 15% a year ago. For the entire fiscal year, attrition remained at 10% levels compared with 16% for 2008.

During Q4, Accenture repurchased 800,000 shares in the open market for $27 million. For the fiscal year, it repurchased 18.9 million shares for $571 million.

Accenture is still cautious on the economic environment and expects the first half of the new fiscal year to be challenging, with improvement expected in the second half. The company has already announced its intention to reduce office space and cut jobs,  including 7% of their senior management. It projects revenues for Q1 to be $5.3 billion to $5.5 billion with fiscal 2010 revenues growing in the range of -3% to 1% in local currency terms. EPS for the year is projected at $2.64 to $2.72.

The stock is trading at $37.50 with a market capitalization of $23.4 billion. In its bid to compete with HP and IBM, Cisco is currently the only major hardware vendor with no services play. With $35 billion in cash as of July end, Cisco does have the funds to pick up Accenture. If Cisco wishes to expand beyond networking equipment, it will need to move into technology services. Is Accenture then on Cisco’s radar?

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