By Stuart Lauchlan

June 26, 2023

The prospect of dwindling IT spend cast a shadow across Accenture as the services behemoth turned in its latest quarterly numbers, hinting at continued macro-economic trouble ahead.

Accenture reported fiscal Q3 earnings of $2.05 billion, up 12.6% year-on-year, on revenue up three percent to $16.56 billion. But the outlook given by the firm for the coming months was downbeat and sent the stock price tumbling.

The firm’s usually resolutely ‘glass half full’ CEO Julie Sweet conceded that the quarter had been a mixed bag:

We had bookings of $17.2 billion, including 26 clients with quarterly bookings greater than $100 million, bringing the total year to date 85, which is 11 more than the same time last year. We delivered revenues of $16.6 billion, representing five percent growth with North America growing two percent,  Europe at seven percent and growth markets at nine percent, all in local currency, bringing us to $48.1 billion of revenue at 10% growth fiscal year to date.

Revenues were impacted by lower than expected small deal sales, especially in strategy and consulting and systems integration and lower than expected results in the communications, media and high-tech industry group for the quarter. 

Still big deals out there

That said, she added:

As we look at demand in our larger deals, we continue to see two common themes that I've highlighted before. First, the rapid rise of generative AI interest among our clients highlights yet again that all strategies lead to technology, particularly cloud, data, AI and security. And second, companies remain focused on total enterprise reinvention as they execute compressed transformation to achieve lower costs, stronger growth, more agility and greater resilience faster.

Sweet was still able to point to large scale transformation programs underway at Accenture clients, citing energy giant ENI as a case in point:

We are helping them as they continue their hybrid cloud transformation and embark on a total enterprise reinvention strategy with a focus on sustainability, digital transformation and security. We are managing their IT infrastructure and telecommunications integration and helping implement new operating models, all hosted in the ENI green data center, one of the largest data bunkers in the industry to securely hold the company's data.

The ENI green data center houses one of the most powerful nongovernmental supercomputers in the world, enabling the highest use of data across the value chain from exploration and production to the energy of the future. New operating models will help exploit the full value of data, AI and cybersecurity for faster adoption of new business processes. This transformation is the first step toward creating a secure digital core that will accelerate ENI's energy transition, drive innovation in AI and R&D and build even greater resilience.

ndustrial conglomerate DuPoint was also named:

We are helping DuPont with a compressed transformation to standardize their finance processes and achieve operational excellence. Building on our trusted relationship of over 35 years, we are now supporting our client with its strategic pivot to innovation-based growth across electronics, sustainable water and protection solutions, industrial technologies and next-generation automotive.

We've been supporting their transformation to an agile cloud-based IT infrastructure to maximize data access, drive efficiency and modernize their landscape. Our work with DuPont is focused on achieving greater resilience, reducing costs and increasing revenue growth and shaping its portfolio through M&A with industry-leading innovation for long-term success.

So there is still big business to be had, seemed to be the underlying message, as well as new opportunities opening up, inevitably beginning with AI. Sweet said:

Our strategy is to be at the center of our clients' business and help them continuously reinvent themselves to reach new levels of performance and to set themselves apart as leaders in their industries. And our clients are at different starting points. All are interested in AI, and particularly generative AI, but most recognize the work ahead of them to get their data, people and processes ready for AI. To reinvent requires a strong modern digital core. And as they embark on this journey, clients are looking to us for unmatched global scale, deep industry and functional knowledge, breadth of services from strategy and consulting to technology to managed services…

…We are now embarking on the age of AI, and companies will need to reinvent how they operate with AI at the core. And it is also early. Think of it as the cloud over a decade ago. Foundation models and products based on them are still maturing with many products announced but fewer at the general availability stage and ready for wide deployment. And with our position as the largest partner with most of the major technology companies, we are at the center of helping our clients navigate their choices in the evolving landscape.

Accenture has sold over 100 generative AI projects over the past four months, she added:

We are working with Mitsui Sumitomo Insurance, a Japan-based subsidiary of MS&AD Insurance Group Holdings to improve customer service by using generative AI and simplify operations for accident response. The generative AI solution will draw from the company's knowledge base, including policy causes and related laws and regulations, which will generate appropriate response plans in a timely manner, dramatically improving the accuracy and speed of explanations to customers.

We're working with a global broadcast company to explore how generative AI can be used to drive audience engagement and growth through deeper and more personalized customer experiences. Together, we recently launched testing that leverages generative AI and Large Language Models to explore how we can automatically create content for the company's customer-facing platforms. The content will help enhance engagement, grow the consumer base across new coverage areas and channels. We believe it will demonstrate how generative AI can be used to create content at scale for a wide variety of experiences and events.

But back to those subdued outlook estimates and what’s to come for Q4. Sweet argued:

Our job is to continue to pivot to where there is higher growth, and we're working on that in digital manufacturing, supply chain, data and AI. But that will take a little time. And what we're seeing is that, there's a lot of extensions going on in small deals, but it's the newer small projects, while at the same time, we continue to have very strong bookings and interest and huge opportunity in transformation.

So I think our clients are kind of holding back on the small stuff and doing the bigger stuff, which obviously converts to revenue differently. But you see where Strategy and Consulting makes a big difference there, like in the DuPont example…where you have to have so much expertise in the industry, as well as the functions, as well as technology. What that means is that, it is going to take a little while for the turnaround.

My take

A gloomy set of numbers that will have eyes turned to the performance of the Indian services rivals as they turn in their latest quarterly numbers in the weeks to come. For Accenture, Sweet is clear about next steps:

The most important thing right now, just as a framework, is [to] stay close to our clients, and really understand. And the thing is, our clients do need ways to get value in the short term as well as to transform. So, we're working hard on finding new ways to get value to them faster. That's where the gen AI, for example, comes in. Over the next quarter, we're going to be developing new opportunities, new campaigns, new ways of pushing out our investments in gen AI to help us address the small deal pressure that we're seeing.

But she adds:

We don't have a crystal ball that is going to say what the economy is going to do, how fast clients are going to get comfortable. 

The AI pitch is by now a familiar one, although it was interesting to see Sweet being quite candid about that hype cycle:

Gen AI isn't there yet, right? So think it's going to take some time. We also don't yet know the cost…A lot of clients are looking at for us to help them with the business case because most of the studies, including our own, are all about what potentially uses of it…The actual ROI? So there's the art of the possible, but what's actually the return? It's still really early days. 

Indeed.