E-Service Firms Posting Ugly Earnings - InformationWeek

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E-Service Firms Posting Ugly Earnings

The IT service provider sector continues to struggle due to a slowdown in demand for systems integration and consulting services. The economy's unpredictability is sending much of this year's IT spending in the direction of larger, more established outsourcing firms like EDS and IBM Global Services.

Cambridge Technology Partners Inc. on Thursday reported a loss of $21.2 million, or 34 cents per share, on revenues of $116.5 million for the first quarter of 2001, ended March 31. Revenues lagged 21% behind the $147.6 million reported for the first quarter of 2000 and 7% below the $125 million reported for the fourth quarter. Losses widened from $4.3 million, or 7 cents per share, for the first quarter of 2000.

The IT service provider reduced its workforce by 250 employees during the first quarter, generating an $11 million restructuring charge. The move is expected to save Novell, which acquired Cambridge Technology in March, up to $28 million annually. For the second quarter, Cambridge Technology expects to see revenue flat to slightly up from the first quarter, with a loss of $11 million to $13 million.

Cambridge Technology's financial performance now becomes Novell's concern. Several other struggling IT service providers reporting this week are still riding out the rough economy on their own. E-service provider Lante Corp. on Thursday reported its revenue for the first quarter was $12 million, down $5.1 million from the first quarter a year ago. Net loss for the quarter was $6.4 million, or 17 cents per share, compared with a loss of $1.4 million, or 4 cents per share, for the first quarter of 2000. Lante also reduced its billable headcount from 347 to 272 for the quarter.

E-service competitor Scient Corp. on Wednesday said its revenue for the first quarter dropped sharply from the same period a year ago--from $65.8 million to $27.1 million--due to a lack of client confidence in the economy, which has delayed spending on technology services.

Scient's loss for the quarter was $31.7 million, prior to an adjustment for about 159 lay-offs, and 38 cents per share. The service provider's losses continue to grow. Scient lost $12.7 million, or 13 cents per share, during the fourth quarter of 2000 but lost only $3.1 million, or 4 cents per share, for the first quarter of 2000. Scient still plans to eliminate another 675 positions by the end of June, leading to a savings of about $175 million annually.

E-service competitor iXL Inc. on Wednesday reported a net loss of $29.8 million, or 38 cents per share, on $40.7 million in revenue for the first quarter. During the same period a year earlier, the company lost 29 cents per share, or $20.6 million, on $101.3 million in revenue. At the end of February, iXL sold most of its San Francisco operations and client relationships to Internet consulting firm Neovation. Over the course of December 2000 and January 2001, the company also laid off 850 employees.

IT consulting firm Keane Inc. might have been in the IT services business longer than Scient or iXL, but it's feeling affects of a slowdown in client spending as well. Keane on Wednesday reported its revenues for the first quarter were $208.3 million, down from $216.2 million for the first quarter of 2000. Net income for the quarter was up 53% to $8.5 million, or 15 cents per share, compared with the same quarter a year ago. The firm's biggest move of the quarter was to sell off its sluggish help-desk business to Convergys Corp. in February for about $15.7 million in cash.

In surveying the E-service provider landscape, most of these companies appear to be in the market for a suitor, says Giga Information Group director Stephanie Moore. The further we get away from the good times these companies enjoyed over the past few years, she says, the less likely it will be for them to be bought as whole entities.

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