Mixed up services
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There were few signs of a sustained upturn in business conditions for the technology industry.
Computer services is one sector of the technology industry, according to analysts at least, that is still enjoying modest growth. But the results from a duo of French IT services providers suggest mixed conditions across Europe.
Atos Origin reported a 6% rise in revenues to €723 million. This was largely thanks to continued growth in its managed services division, which mitigated the effects of the severe business slowdown during September 2001 following the terrorist attacks. Systems integration work was particularly badly hit by the events in the US.
Unsurprisingly, North America and Asia Pacific were the weakest markets for Atos, but conditions across Europe varied dramatically from country to country. In response, Atos continued with its cost-cutting measures, consisting primarily of redundancies and disposals. Going forward, it has warned that revenue growth will be just half of the 15% it had previously expected.
Europe's largest IT services group Cap Gemini Ernst &Young delivered a disappointing performance in the third quarter. Revenues slid 2% to €2.0 billion as its business continued to deteriorate. The group announced further job cuts – bringing this year's total to 5,400 – and chief executive Geoff Unwin quit his job ahead of schedule. Unwin has come under fire for his acquisition of Ernst &Young in 2000 which boosted the company's US presence just as the economy started slowing down.
Unwin has been replaced by Paul Hermelin, Cap Gemini's chief operating officer (COO) who has been with the company since 1993. Ominously, Hermelin says that he expects business to worsen in the first half of 2002, hence the additional lay-offs. "The key objective is to have a lighter and more reactive structure," he said.
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US figures deteriorate
The European technology sector may be continuing its slow slide, but it still looks relatively buoyant compared to the picture elsewhere. US-based vendors of products and services relating to Linux, the open source operating environment, for example, endured a torrid quarter. First-quarter revenues at open source software supplier VA Linux plummeted 90% to $5.6 million (€6.4 million) on the back of its surprise decision to quit the server hardware market. Net losses widened 7% to $54.9 million (€62.3m), the bulk of which was attributed to costs from closing the hardware business.
The Nasdaq-listed company had generated most of its sales in this market, but was steadily losing ground to computer services behemoth IBM. Its new focus, on selling its collaborative software development platform, also prompted a change of the company name to VA Software.
Red Hat, developer of the market-leading Linux distribution, saw revenues slip 4% to $21.5 million (€24.4m) in its third quarter. Net losses were trimmed to $15.1 million (€17.1m) from $21.4 million (€24.3m) during the same period last year. But, for the nine months to October 2001, losses grew a whopping 57% to $97.9 million (€111.1m) on revenues down 10% to $68.2 million (€77.4m). The network consulting division suffered the most sustained fall in revenues, although this was tempered by improvements in its open source services business.
There was further misery for networking systems companies as the troubled communications industry continued to rein in spending. Both 3Com and Juniper saw quarterly revenues halve.
Net losses at Juniper fell 81% to $15.9 million (€18.1m) in its fourth quarter to the end of December 2001. However, for the year as a whole, the networking hardware vendor plunged $13.4 million (€15.2m) into the red, from profits of $147.9 million (€167.9m) the year before. This was in spite of a 32% rise in full-year sales to $887.0 million (€1.0bn).
Struggling networking equipment specialist 3Com managed to cut net losses by 27% to $103.7 million (€117.7m) in its second quarter, despite the massive fall in revenues to $393.9 million (€447.2m). This was due to a cost-cutting programme involving the closure of unprofitable business and product lines and a cut in staff numbers. CFO Mike Rescoe suggested that the success of these measures might see 3Com return to profitability in the fourth quarter.
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