MCN Direct Newswire

Vol. 4 No. 10, 18 April 2005

This issue is sponsored by:

InterSystems

This issue news

1. Job cuts loom as IBM falls short
2. Infosys delivers Indian promise
3. LogicaCMG pins down £31m police contract
4. Morse struggles to get a grip on growth
5. Andersen veteran takes charge at Siebel
6. Further information - feedback/pass on to a colleague/remove from mailing list

Sponsor

InterSystems

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1. JOB CUTS LOOM AS IBM FALLS SHORT

IBM failed to meet Wall Street expectations when it reported its first-quarter financials last week, forcing chairman and CEO Sam Palmisano to admit that "appropriate measures" will be taken to sharpen its execution.

IBM's net profit for the three months to 31 March rose 3% on last year's comparable quarter, reaching $1.4 billion (£742.1 million). But earnings per share of 85 cents were 5 cents off Wall Street expectations.

Revenues for the quarter rose 3% to $22.9 billion, with Global Services contributing $11.7 billion, a 6% gain on last year's equivalent quarter. The services business signed contracts worth $10 billion in the three months, creating an estimated services backlog of $110 billion. Hardware revenue was flat at $6.7 billion, while software revenue increased 2% to $3.6 billion.

EMEA made the most ground, showing revenues up 7% at $7.7 billion, ahead of the Americas up 2% at $9.3 billion and Asia-Pacific up 1% at $5.2 billion.

Despite the overall gain in EMEA, revenue in key countries including Germany and France was down, leading IBM chief financial officer Mark Loughridge to say the company would re-examine its operations and organisational structure in Europe. While IBM has yet to detail any reorganisation, analysts suggest jobs will be cut across the European business.

Commenting on the results - which include the effect of paying share-based compensation - Palmisano said: "After a strong start, we had difficulty closing transactions in the final weeks of the quarter, especially in countries with soft economic conditions, as well as with short-term Global Services signings. As a result, we did not achieve all of our goals for the quarter. We are taking appropriate measures to sharpen our execution, as we continue to implement our global growth strategies."

2. INFOSYS DELIVERS INDIAN PROMISE

Infosys kicked off the reporting season among India's IT services firms, showing fiscal 2005 net profit up 55% at $419 million (£221.6 million), on revenue rising 50% to $1.6 billion.

Fourth-quarter net profit rose an even more impressive 65% to $127 million, on revenue up 50% at $455 million.

Despite this stellar performance - and its intention to break the $2 billion revenue barrier in the year to 31 March 2006 - Infosys said its next two quarters will be relatively flat. Large US customers are expected to delay IT-related decisions because of the need to ensure they meet the financial reporting obligations of Sarbanes-Oxley legislation.

Conversely, Sarbanes-Oxley is expected to increase the IT services market for India's offshore outsourcing players as companies adopt more technology-based processes to ensure compliance.

Commenting on the results, Infosys chief financial officer TV Mohandas Pai said: "This has been a good year. Pricing has been stable. We spent $186 million on capital expenditure and added a record 10,781 seats. Our balance sheet continues to be liquid with over $688 million in cash and cash equivalents, and investments in liquid mutual fund units. We also invested back in the business to develop engines of growth."

Infosys said that during the final quarter of 2005 it added 37 new clients and 2,506 employees for a total of 36,750 staff at the close of the financial year. The company expects to recruit an extra 12,000 employees in the coming year and is forecasting fiscal 2006 revenue growth of 28-30% for a total of between $2 billion and $2.1 billion.

3. LOGICACMG PINS DOWN £31m POLICE CONTRACT

LogicaCMG has won a £31 million, seven-year outsourcing contract with the Metropolitan Police Authority, an organisation set up in 2000 to scrutinise and support the work of the Met Police.

Under the terms of the deal, LogicaCMG and its pensions administration partner Paymaster will provide managed payroll and pensions administration services for theMet Police's 46,000 officers and staff.

It is expected that LogicaCMG's HR outsourcing capabilities will help the force develop and manage pay and benefits offerings, providing the potential for enhanced self-service options for employees.

Gary Austin, managing director for LogicaCMG enterprise services, said: "Across the private and public sectors, 2005 is the year in which organisations will focus more on the relationship they have with employees. Staff motivation and retention has never been higher on the agenda. HR outsourcing presents an opportunity for organisations to reduce the administrative burden on HR personnel and allow the HR function to deliver greater strategic value."

The contract builds on LogicaCMG's existing involvement in the police sector, where it provides outsourced payroll services to Thames Valley, Surrey and Essex police as well as to the Suffolk Constabulary.

4. MORSE STRUGGLES TO GET A GRIP ON GROWTH

Morse, the consulting and IT company that last year acquired SAP specialist Diagonal, is failing to make ground, pulled back by its hardware reselling business.

In a performance update for the third quarter ended 31 March, the company said sales were flat against last year's comparable period at £96 million and down from sales of £124 million in the previous quarter.

Diagonal contributed sales of £13 million in the third quarter and Morse said its SAP offering is being "well received" by customers. Morse also said it is making progress in developing a mobility offering and Diagonal's Wisdom electronic document and record management system.

Services accounted for 45% of revenue in the third quarter, but Morse has a way to go before achieving its aim of generating 70% of profits from its services businesses.

At the interim, the company reported losses of £7.6 million as it struggled to leverage its acquisitions and turn around the loss-making hardware business (MCN Direct 4-3). In the third quarter, Morse noted a further deterioration in its hardware business and said the poor market provides "an opportunity to accelerate making changes to the business structure" to ensure the infrastructure component is sustainable and profitable.

Morse said it would provide details of changes towards the end of the fourth quarter.

Describing the company's dilemma, chief executive Duncan McIntyre, said: "We are pleased with the steady progress of our services business. We are, however, disappointed with the performance of the UK infrastructure business for the third quarter, with this market proving weaker than anticipated. While the lack of stability in this market makes trading difficult to predict, we will take advantage of these market changes to remodel the infrastructure business so that it forms a productive part of the services-led business we are developing."

5. ANDERSEN VETERAN TAKES CHARGE AT SIEBEL

George Shaheen, the consulting industry veteran best known for a 10-year stint as CEO of Andersen Consulting, has been named as chief executive of customer relationship management (CRM) software supplier Siebel Systems.

Siebel, a top performer in the 1990s but now struggling with falling sales in a less dynamic market, will be hoping Shaheen can re-create his success at Andersen - now Accenture.

During his tenure at the consultancy he increased revenues from $1 billion to $9 billion, but jumped ship in the dotcom boom to lead Webvan, an internet grocery company that became a victim of the dotcom bust.

Shaheen has been on the Siebel board since 1995 and replaces Michael Lawrie who agreed to resign as CEO. Lawrie, a former IBM executive, was appointed to the role in May 2004 when company founder Tom Siebel relinquished the title to become chairman of the board.

Siebel is denying suggestions that Shaheen has been appointed to groom the company for sale, with Tom Siebel saying: "It would be hard to imagine someone more qualified to lead Siebel Systems forward."

Commenting on his role, Shaheen said: "I am enthusiastic about this challenge because I believe Siebel Systems is a great company with all the ingredients it needs to succeed. I intend to focus relentlessly on execution."

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