Cognizant Technology (CTSH
) also detracted from performance during the quarter, in part when shares fell -19.2%, in one day, after the company revised its forecasts to include slightly slower future revenue growth due to the challenging macroeconomic environment. The last time Cognizant lowered revenue growth guidance was in July 2008, a period that also featured a challenging macroeconomic environment. Regardless of the economic environment, the company continues to maintain its competitive advantage in the highly attractive IT consulting industry. As is typical of most companies in this industry, nearly all of Cognizant's cost structure is variable. This affords the company tremendous bargaining power relative to customers, since Cognizant has few fixed costs to justify. Cognizant continues to further differentiate itself from its industry peers by aggressively reinvesting in the company's value chain. Specifically, Cognizant continues to expand its outsourced-IT offerings into new and existing industry verticals, such as Manufacturing and Retail & Logistics, by attracting experienced talent from the same industry verticals, and then converting these veterans into world-class consultants. Cognizant further arms their consultants with IT-delivery resources that are primarily located in India, which, thanks to wage-arbitrage, lowers the overall cost of an IT-based function, relative to insourcing. This unique value chain consistently enables Cognizant to offer products and services that enable cost-conscious clients to convert traditionally fixed-IT costs into variable expenses. Clients are then more able to focus on their respective core competencies. This value proposition is still intact and has led Cognizant to quite a bit of market share take over the past few years. Cognizant's financial strength consists of record free cash flow and ample net balance sheet cash, which enables much of this reinvestment flexibility. During the quarter, we added to the position at what we believe were compelling valuations.
From Tony Guerrerio
's second quarter letter
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