uhh, what happens when we have too much service in our service economies, maybe there are some future butlers in the making here or waiters, at least those will be needed services
Cap Gemini Reduces Sales Forecast; to Cut 2,700 Jobs (Update3)
2001-06-26 06:08 (New York)
Cap Gemini Reduces Sales Forecast; to Cut 2,700 Jobs (Update3)
(Adds details on share decline in fifth paragraph, and on
profitability in ninth.)
Paris, June 26 (Bloomberg) -- Cap Gemini SA, Europe's biggest
computer-services company, lowered its sales forecast and will cut
2,700 jobs as demand from manufacturers and investment banks
cooled. Its shares fell as much as 24 percent.
Cap Gemini sees revenue of 9 billion euros ($7.77 billion)
this year, down from its previous forecast of 9.6 billion euros.
The job cuts, which amount to 4 percent of its workforce, will be
mainly in the U.S., U.K. and the Nordic region.
The Paris-based company bought the consulting arm of Ernst &
Young LP, the No. 4 accounting firm, last year to boost its U.S.
business and gain customers such as Coca-Cola Co. and Ford Motor
Co. The U.S. expansion came as the world's largest economy began
to cool, a slowdown that's since spread to Europe.
``They've been in a state of denial,'' said Paul Doyle, who
helps oversee about $8 billion in European stocks at Zurich
Scudder Investments in London. ``There's undoubtedly a very big
slowdown going on.''
Shares of Cap Gemini, which had fallen 36 percent this year,
dropped as much as 26.05 euros to 84.55 euros, wiping 3.2 billion
euros off the company's market value and reaching their lowest
level since February 1998. The company, which doesn't release
quarterly figures, will report first-half earnings on July 30.
``Until the end of April, our bookings were good,'' said
Geoff Unwin, Cap Gemini's chief executive, during a conference
call. ``What's definitely new is the question of project
cancellations, and that's very hard to predict.''
Operating Margin Narrows
Rival Accenture Ltd, the world's biggest consulting firm,
said earlier this month it was cutting its workforce by about
1,400 worldwide to reduce expenses as business drops. Accenture,
previously known as Andersen Consulting, is planning to raise as
much as $1.7 billion from an initial stock sale this year.
Cap Gemini's revenue rose 10 percent to 8.46 billion euros in
2000, when the Ernst & Young unit's contribution is included for
the full year.
Unwin said the company's operating margin -- or earnings
before interest and taxes as a percentage of revenue -- will fall
to about 7 percent this year. Last year, the company had a
proforma operating margin of 10.5 percent and said it wished to
improve that in 2001.
The company expects first-half revenue of 4.4 billion euros
and an operating margin of 6 percent.
`Ostrich'
``It's not surprising that they issued a profit warning in
the current environment, but what's shocking is how big it is,''
said Nicolas de Smet, an analyst at HSBC in Paris who rates the
shares ``hold.'' ``It's like an ostrich sticking its head out the
ground and realizing things look bad.''
Before today's statement De Smet had expected Cap Gemini to
report earnings before interest and taxes, or operating profit, of
968 million euros. He now expects Cap Gemini's operating profit
will be about 650 million euros.
In recent months, Cap Gemini had been sticking to its
forecast for the year, saying in March that it didn't see a
slowdown in the U.S., where it makes 35 percent of sales,
affecting its business. It repeated that message during an analyst
conference in May, de Smet said.
Cap Gemini said today that delayed and canceled orders from
customers in financial services, technology and manufacturing,
especially in the U.S., led it to lower forecasts. The company
will ``significantly'' reduce expenditures, and said the
reorganization will cost about 85 million euros this year.
Cap Gemini says it ranks fifth in the global computer service
and consulting market, which is dominated by U.S.-based companies.
International Business Machines Corp. is the biggest, followed by
Electronic Data Systems Corp., Accenture, and Computer Sciences
Corp.
These companies set up networks, customize software and
perform other tasks for corporate and government clients.
--Jad Mouawad in the Paris newsroom (331) 5365 5076, or
jmouawad@bloomberg.net fc
Story illustration: {CAP FP <Equity> ERN <GO>} for previous Cap
Gemini earnings.
CAP FP <Equity> |
