DXC job cuts are part of its 'turnaround plan'
US IT service firm DXC -- which was formed in 2017 with the merger of CSC and HP Enterprise's service business -- let go of 10,000 people, or 7 per cent of its workforce, in the last fiscal as part of a turnaround plan. At least half of these cuts were in India.
Total headcount of the US-based IT firm
The entity's total headcount was 1.7 lakh around the time the merger was announced, but it's now down to 1.33 lakh.
Number of employees in India
The IT firm employs 43,000 people in India, one of its largest delivery engines for application outsourcing and software development.
US SEC filings suggest increase in restructuring cost
The company's US Securities and Exchange Commission (SEC) filing showed that its total restructuring costs recorded, net of reversals, during the fiscal 2018, 2017 and 2016 were $803 million, $238 million and $23 million, respectively.
Three-pronged cost rationalisation exercise
The IT service firm has adopted a three-pronged cost rationalisation exercise, including headcount, subcontractor expenses and real estate.
What DXC's CEO has to say
DXC CEO Mike Lawrie said the company plans to add people with digital capabilities. "...this balance between digital growth and traditional decline will continue to be lumpy as we go through the next year. But, this is the revenue dynamic that we talked about before that will ultimately support long-term growth for the company," he said in the Q4 investor call.
Downscaling in India necessary?
Phil Fersht of US-based consulting firm HfS Research said, "DXC has no choice but to manage a controlled reduction in its global workforce over the next 2-3 years, and India will be one of the key regions where some downscaling will be necessary, especially as global expansion of skills and delivery becomes a key differentiator."
Challenges ahead for the company in India
DXC has been facing growth challenges in India as is evident from the fact that its net profit from India operations was down at Rs 276 crore, compared to Rs 305 crore. Revenue in 2017-18 was Rs 2,702 crore as compared to Rs 2,808 crore in the year before.
Not a clear hiring plan in place
While significant number of jobs have been cut in India, it's not clear how much of hiring in new digital areas is being planned in the country.
What salary cuts would mean for DXC?
Average DXC cost per employee is as high as $108,000 -- which is 2 times more than Accenture, and 3 times more than Cognizant and Infosys, James Friedman of Susquehanna Financial Group (SFG) pointed out. SFG calculates that every 1 per cent cut in salary would yield $163 million in savings for DXC.
Subcontractor cost more than that of Infosys
DXC spent $3 billion on subcontractor costs in the 2017 financial year, reaching 14.2 per cent of revenue, compared to 7 per cent for Infosys. If the company can reduce these costs by just 150 basis points, it could see as much as $300 million of cost savings.