Board-Ansicht
Mix-Ansicht- End of an era - leibovitz, 13.12.2001, 17:45
End of an era
End of an era
Logica/CapGem: The accident waiting to happen at Logica finally occurred. The British IT services group has warned of a sharp deceleration of growth in its text-messaging software business. This is a significant development. With residual revenue from the technology and telecoms bubble drying up, Logica can no longer hide from the cyclical slowdown in its core services business.
The industry is now grappling with the same problem that hit hardware companies many months ago. It has been too slow to take out costs. While services firms are finally waking up - witness the 1,900 job cuts announced by Cap Gemini this week - their business is now mired with overcapacity. Prices are falling faster than costs, leading to a squeeze on margins. The problem will be most acute in countries with restrictive labour laws, notably France and the Benelux area.
Investors had been hoping for a strong recovery in IT services by the middle of next year. Now they will be less inclined to “look through” the current rough patch. The sector may not look overvalued on about 22 times next year’s estimated earnings. However, investors should cast a more critical eye over consensus earnings forecasts. These do not yet adequately reflect the outlook for margins.
Author: Mike Monnelly
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