Today in tech: Cognizant in Europe; Earnings misguidance; Lenovo's new tablet

Cognizant in Europe

Bloomberg reports that Cognizant is looking to buy companies in France and Germany, as it expects more demand in Europe with businesses there try to cut costs by outsourcing.

Cognizant’s revenues from Europe has gone up in the last five years.

However, compared to its biggest market, US, and to its peers, Europe is small.

Cognizant evidently feels the need to push European revenues faster, and is looking at acquisitions to build scale. Even an aquisition within the range of its sweet spot (for tuck in acquisition), around $100 million, can double its revenues from continental Europe. If its acquisition touches its upper limit ($200 million), it could triple the revenues from there.

Earnings misguidance
One of the most looked-forward-to announcements from Cognizant the day before yesterday was its guidance. Last quarter, it had brought down its annual revenue guidance from 23% to 20% for 2012, and those who track the sector were looking to whether it would bring it down further given the negative indicators from the market. (Cognizant didn't.) Last month, when Infosys decided not to give quarterly guidance, it recieved a lot of flak from the analysts. (SD Shibulal, infosys CEO said, the idea behind the guidance is to remove any information asymmetry between the management and the investors, and since the managers themselves did not have visibility, they saw no point in giving one.)

TCS doesn’t give guidance - quarterly or annual.

Is the country’s largest IT Services company better off for not getting into the guidance game?

I came across an old, but very interesting, article in McKinsey Quarterly, which argued  that there was no evidence to show shareholders gained anything of consequence out of this exercise. On the other hand, it only increased the costs in terms of management time spent on preparing these reports.

The cost Vs benefit argument does not answer the issue of information asymmetry cited by Infosys CEO. The authors have this to say: "Instead of providing frequent earnings guidance, companies can help the market to understand their business, the underlying value drivers, the expected business climate, and their strategy—in short, to understand their long-term health as well as their short-term performance. Analysts and investors would then be better equipped to forecast the financial performance of these companies and to reach conclusions about their value."

To me this made sense. Going by the number of times IT companies have been so off the mark - in the sense of beating their own guidance - I am not sure if the market takes the number per se seriously. (Evidence: Look at the number of times when the share prices dropped when a company met its own guidance, but the numbers were below market expectations). In short, guidance is just seen as yet another piece of information to help them decide what to expect from the market. The question is whether its worth management time to provide that information, or should they be spending that time for real business?

IT Services companies often talk about the new normal - which makes this a good time to give a second thought about guidance.

Lenovo’s new tablet | Launch date Oct 26

Some interesting links:

Lenovo ThinkPad Tablet 2: Looks Like a Tablet, Behaves Like a PC: Gizmodo

Lenovo Windows 8 ThinkPad Tablet 2 aimed at iPad business users, includes pen input and dock: Verge

Lenovo unveils new Atom-powered ThinkPad Tablet 2 with Windows 8 | The tablet will include a stylus and a keyboard dock complete with TrackPoint.: Arstechnica

You’ve Come A Long Way, ThinkPad: Lenovo Unveils New Ultrabooks, Windows 8 Tablet: AllThingsD

Also of interest
Google Goes After Siri, Merges Gmail With Web Search: Wired
Zynga COO John Schappert Resigns: PCMag
Facebook's design manager leaves for the Designer Fund: CNet

The thoughts and opinions shared here are of the author.