Managed services News
Accenture CEO Julie Sweet: ‘All Strategies Continue To Lead To Technology’
Joseph F. Kovar
‘While the pace of spending has changed, the fundamentals have not. All strategies continue to lead to technology, and companies will need to reinvent every part of their enterprise using tech, data, and AI to optimize operations and accelerate growth. To do so they must build a digital core,’ says Accenture Chairperson and CEO Julie Sweet.
Global solution provider Accenture is banking on a major investment in AI and GenAI and other ways to generate new value for clients and help drive new revenue growth in the coming fiscal year.
However, revenue and earnings growth for fiscal 2023, which ended August 31, missed analyst expectations, a factor in a 4.3-percent drop in the company’s share prices Thursday by the close of the trading day. However, in after hours trading, share prices recovered slightly.
Accenture chairperson and CEO Julie Sweet (pictured) told financial analysts on the company’s fiscal year 2023 financial conference call Thursday that fiscal year 2023 was one for the record books, with record bookings of $72.2 billion, as well as a record 106 clients with quarterly bookings over $100 million in FY 23 compared to 100 last year.
It was also a year of significant investments for the company, Sweet said, with capital deployed of more than $2.5 billion across 25 acquisitions; $1.3 billion in R&D assets, platforms and industry solutions; and $1.1 billion invested in personnel training and development.
As part of that investment, Sweet said Accenture is rapidly taking an early leadership position in GenAI, an important part of the reinvention of its clients in the next decade.
“Last quarter, we shared that we had sold 100 projects with roughly $100 million in sales over the prior four months,” she said. “Demand accelerated in Q4, with another approximately $200 million in GenAI sales to bring our total to over $300 million for the year. We also are embracing the use of GenAI in our own delivery of services and the way we work across Accenture.”
As Accenture, ranked No. 1 on CRN’s 2023 Solution Provider 500, enters fiscal 2024, it remains laser-focused on creating client value, Sweet said.
“While the pace of spending has changed, the fundamentals have not,” she said. “All strategies continue to lead to technology, and companies will need to reinvent every part of their enterprise using tech, data, and AI to optimize operations and accelerate growth. To do so they must build a digital core.”
Accenture continues to see significant demand in areas like cloud migration and modernization, modern ERP, and data and AI - and the emergence of GenAI in particular - all of which represent areas of great opportunity, Sweet said.
“And it’s still early,” she said. “For example, we estimate that only 40 percent of workloads are in the cloud today, only one-third of clients have modernized their ERP platforms, and less than 10 percent have what we define as mature data and AI capabilities. We believe helping build a strong digital core, and then using it to reinvent, will be the drivers of our growth. Our ability to advise, shape, and deliver value-led transformation leveraging the breadth of our services and industry expertise, from strategy and consulting, to technology, to our managed services, across industries and geographic markets, along with our privileged position with our ecosystem partners, is what makes Accenture unique.”
Accenture last quarter unveiled a $3 billion investment in AI, and while still in the early stages, GenAI technology is maturing rapidly, Sweet said.
“We believe it will be a significant source of value for us and our clients over time,” she said. “We now have about 300 projects across all our industries, with banking, public service, consumer goods, and utilities leading activity. Clients are doing a variety of different types of work from strategy and use-case implementations to tech enablement, to scaling, to model customization, tuning and training to talent and responsible AI.”
Sweet cited four key ingredients to Accenture’s success in GenAI.
The first is deep relationships with AI ecosystem partners including hyperscalers to model builders, to startups and academics, she said.
“It is important to emphasize that we are early in the maturity of GenAI for enterprise, and our depth, experience, and insight on these platforms is essential to guiding our clients.”
The second is talent, starting with a deep technical knowledge and understanding of AI and GenAI and combining it with industry and functional expertise, Sweet said.
“We have already trained approximately 600,000 of our people in the fundamentals of AI,” she said. “Now with generative AI, the pace and impact is growing rapidly. And we are now taking a further step to equip more than 250,000 people in using new AI tools equitably, sustainably, and without bias. And with investment in our AI Academy and our focus on deep AI and GenAI specialization, we are also progressing towards our goal of doubling our deeply skilled data and AI practitioners from 40,000 to 80,000.”
The third is a focus on responsible AI, Sweet said.
“At Accenture, we have an industry-leading responsible AI compliance program, which is embedded in how we use and deliver AI,” she said. “And we’re using the experience and lessons learned by us to help our clients build out their own responsible AI program, which is necessary to address the risks and get the full value from AI.”
The fourth is embracing GenAI across all Accenture services and developing new tools and solutions embedding GenAI in the way the company works, Sweet said.
“Our approach takes into account where the technology is today, the need to deploy it responsibly, and the recognition that we do work in highly complex environments,” she said. “While all companies want to explore and understand GenAI, what we find is that clients who are more mature digitally want to go faster, while others would like to test the waters with proofs of concept and synthetic data, and others prefer to wait until they have built more of their modern digital core.”
Despite the successes Accenture is seeing and the investments it is making, Sweet said, the company and its clients have had to navigate a macro environment that is tougher than anticipated at the beginning of the company’s fiscal year 2023.
“While it’s played out differently across markets and industries, we have seen greater caution globally with lower discretionary spend, slower decision making and, in particular for us, a significant impact from the challenges the comm, media, and tech industries have faced,” she said.
Despite the increase in tech layoffs experienced in calendar 2023, Accenture has seen its headcount grow. Sweet said Accenture now has approximately 733,000 people, up from 721,000 employees a year ago.
During the question and answer period of the conference call, when asked by an analyst to comment on the slowdown Accenture saw in some of its managed services bookings in the quarter, Sweet said that managed services are often a part of large transformational programs.
“[When] we think of the transformation deals, managed services are often a way to pay for them,” she said. “They’re often also a way to go faster and modernize. But we really look at those transformational programs in the round. So when you think about the fundamentals that our clients are facing, there is more reinvention ahead than they have done so far. So huge opportunity ahead. And you see that in where they are in the cloud journey: only 40 percent workloads, right? We estimate less than 10 percent of our clients are mature in data and AI. Only a third have put in modern ERP programs. And so as you think about what they have to do, managed services will continue to play a huge role in paying for it and in actually modernizing much of it.”
That makes Accenture well positioned going forward, Sweet said.
“Reinvention begets more,” she said. “So you first build the digital core, and then you’ve got a lot of work on top of that. And that is our growth strategy.”
Sweet said that in her meetings last week with about 20 different CEOs, she heard three messages: Tech is super important, they have major programs underway and know they need to do a lot more, and they’re feeling cautious about the macro environment.
“And we’ve already seen that in the small deals,” she said. “But they’re asking us to help them save money and be more focused right now, even on the bigger programs. And so what I would say is, and that’s reflected in our guidance, is that the macro is having an effect on the pace of spending right now. [That] plays into our strengths in terms of being able to be the reinvention partner, being able to really think about the journey, and positions us super well as they navigate that macro. But the reality is that there is this sense of caution. And it’s bleeding over to overall demand.”
For its fiscal 2023 fourth quarter, ended August 31, Accenture reported total revenue of $15.99 billion, up 4 percent from the $15.42 billion the company reported for its fourth fiscal quarter 2022.
Revenue for the quarter missed analyst expectations by $80 million, according to Seeking Alpha.
That included North American revenue of $7.55 billion, up slightly from last year’s $7.52 billion; Europe revenue of $5.30 billion, up from $4.80 billion; and growth market revenue of $3.13 billion, up from $3.10 billion.
Accenture also said that consulting accounted for $8.20 billion, down from $8.33 billion, while managed services accounted for $7.79 billion, up from $7.09 billion.
From an industry perspective, Accenture reported product revenue of $4.75 billion, up from $4.48 billion; health and public service revenue of $3.27 billion, up from $2.89 billion; financial services revenue of $3.03 billion, up from $2.94 billion; communications, media, and technology revenue of $2.71 billion, down from $3.08 billion; and resources revenue of $2.23 billion, up from $2.03 billion.
Accenture also reported GAAP net income of $1.41 billion or $2.15 per share, down from last year’s $1.69 billion or $2.60 per share. On a non-GAAP basis, Accenture reported net income of $1.76 billion or $2.71 per share.
Non-GAAP earnings beat analyst expectations by 8 cents per share, according to Seeking Alpha.
For all of fiscal 2023, Accenture reported revenue of $64.11 billion, up from last year’s $61.59 billion.
That included North American revenue of $30.30 billion, up from last year’s $29.12 billion; Europe revenue of $21.29 billion, up from $20.26 billion; and growth market revenue of $12.53 billion, up from $12.21 billion.
Accenture also said that consulting accounted for $33.61 billion, down from $34.08 billion, while managed services accounted for $30.50 billion, up from $27.52 billion.
From an industry perspective, Accenture reported product revenue of $19.10 billion, up from $18.28 billion; health and public service revenue of $12.56 billion, up from $11.23 billion; financial services revenue of $12.13 billion, up from $11.81 billion; communications, media, and technology revenue of $11.45 billion, down from $12.20 billion; and resources revenue of $8.86 billion, up from $8.08 billion.
For the year, the company reported GAAP net income of $7.11 billion or $10.77 per share, up from last year’s $7.00 billion or $10.71 per share. On a non-GAAP basis, Accenture reported net income of $7.59 billion or $11.67 per share.
Looking ahead, Accenture expects fiscal 2024 first quarter revenue to be in the range of $15.85 billion to $16.45 billion. That would be down 2 percent to up 2 percent over the same period one year before.
For all of fiscal 2024, Accenture is guiding revenue growth of between 2 percent to 5 percent. GAAP operating margin is expected to be up 110 to 130 basis points. GAAP earnings is expected to be in the range of $11.41 to $11.76 per share, an increase of
6 percent to 9 percent over fiscal 2023. Non-GAAP earnings are expected to be in the range of $11.97 to $12.32 per share, up 3 percent to 6 percent over fiscal 2023.