Tough second quarter for IT firms

Profit warnings and axed jobs plague hi-tech sector

Although TS Eliot said that April is the cruellest month, June was tougher for many IT firms. A number of companies issued profit warnings and axed jobs to cut costs, after admitting that the second quarter of this year had not gone as well as they had hoped.

Consultancy firm Cap Gemini Ernst & Young will cut 2700 staff and has reduced its full-year financial forecasts by 600m euros (£360m) to 9.3bn euros, down from the 9.6bn it had expected.

The company blamed the slowdown in the financial services hi-tech sector and US manufacturing industry. Cap Gemini executives said that the proposed staff cuts will come mainly in the US, UK and Scandinavia, as well as from its global telecoms operations.

Also citing a downturn in the industry, optical components vendor and Lucent spin-off, Agere, announced plans to cut 4000 jobs, and warned of greater than expected losses in its third quarter.

The company now expects its turnover for the period April through to June to be $920m (£649.7m), down $30m from the $950m it predicted at the end of April. Lucent itself announced 10,000 job cuts last week.

Other companies caught in the slowdown and forced to make job cuts include Linux distributor VA Linux, which said it was going to stop selling Linux computers from next week and would cut 35 per cent of its workforce amounting to 153 staff. Also, mobile vendor Nokia is cutting 1000 jobs and warned that more may follow after a profit warning last month.

Marianne Kolding, director at analyst firm IDC, believes there may be hope of a slight upturn later this year. "I believe the US is talking itself into a slowdown but there may well be some recovery around October when budgets are set for 2002 and companies want to make a positive start to the year," she said.