Logica wounded by mobile setbacks
IT services and software group Logica Plc has cut 700 of its 11,500-strong workforce, and admitted that sales in its mobile networks division have rapidly deteriorated in 2002.
The company said it is also pulling out of offices in Japan, the UK and Ireland, and will take a one-time charge of 34m pounds ($48.3m), with the hope of producing annual cost savings of 40m pounds ($56.8m).
About 400 of the job losses will be in the mobile networks unit, which accounts for 27% of the company's revenue, but some 40% of its profit. The London-based company said that in the second half of its fiscal year to June 30, 2002, sales in the division will be "substantially below" the 161.7m pounds ($229.6m) figure it achieved in the first half, and it will break even only at an operating level.
At the core of the company's current problems is the disappointing uptake of its multimedia messaging infrastructure systems, which process enhanced graphic and audio files sent between next-generation mobile phones. Logica also said that operators are not investing in upgrades of SMS infrastructure systems, claiming that growth in SMS traffic has slowed this year in Japan, Europe and Asia.
Logica claimed in February that its MMS systems are currently involved in 15 technical trials with operators around the world, but last Friday said that it does not expect to demand to recover in the six months to December 2002. Operators had been expected to start investing in MMS infrastructure systems in the second half of this year as handset manufacturers launch MMS-enabled camera phones in the run-up to the festive season.
But despite its success in the SMS infrastructure software market, there are major doubts about Logica's ability to win in MMS in the face of tougher competition. Mobile systems vendors such as LM Ericsson Telefon AB and Nokia Corp are taking a greater interest in MMS, having missed out on the boom in first-generation messaging systems. They are expected to use their end-to-end provisioning capability, which crucially includes provision of new terminals, to muscle out their smaller specialist rivals. This was highlighted when Ericsson was awarded a nine-network MMS system contract with Vodafone Group Plc in January.
Friday's announcements mark a painful, but not mortal wounding for Logica. The company's IT services business, which accounts a little under three-quarters of its revenue will report a single-digit growth in the year to June 2002. Despite slack demand for systems integration projects in the telecoms and financial services sectors, the company continues to enjoy growth in outsourcing projects, particularly in the public sector.
The company has one of the healthiest balance sheets of the major European IT services providers, with 90.7m pounds ($128.8m) cash reserves at the end of 2001. It still commands a stock market valuation in excess of 1bn pounds ($1.4bn), and with few IT services providers currently adopting aggressive M&A strategies, it is unlikely to be an acquisition target.
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