Start Planning for New Years Now
Consultants are starting to sound like long-suffering Boston Red Sox fans, whose familiar battle cry is, "Wait until next year!"
Three months into 2001, its clear that the expected pickup in e-services is becoming a distant dream. Earnings warnings continue to pile up along with layoffs, sending our Partner Index to a 52-week low.
Last week, it was Cisco Systems sounding the alarm. A few days after the company announced its first major layoff in 17 years, CEO John Chambers said the slowdown in U.S. business in the first half of the year is likely to extend into the second half and possibly spread overseas.
Merrill Lynch said its latest survey of 300 IT and business professionals showed that more than half have cut IT budgets or left them unchanged from the previous year. And market research firm First Call reported that in the last three weeks, expectations for tech sector earnings declined 29 percent for Q1, 27 percent for Q2 and 14 percent for Q3.
"The rapidity and depth of the downturn in tech earnings has all the appearances of the downturns in 1969-70, 1973-74 and 1979-80, when internal problems in technology [transition to a new generation of mainframes] coincided with a recession," Charles Hilli, director of research, wrote in his weekly overview.
Our index fell nearly 10 percent for the week ended March 15, led by declines in Internet consulting stocks and ASPs. MarchFirst shares lost almost half of their value. After repeated denials, the company confirmed a March 12 report in Sm@rt Partner that CEO Robert Bernard is resigning.
MarchFirsts stock price is "essentially discounting bankruptcy" of the company, says Mark Wolfen- berger, analyst at Credit Suisse First Boston.
Razorfish, another consulting firm, hit a new low after announcing another round of job cuts on top of the 20 percent slashing disclosed last month.
In related news, Novell announced that it plans to acquire Cambridge Technology Partners, a former member of our index, in a stock deal worth about $240 million. Shares of both stocks fell, following the announcement.
Internet service provider PSINet, another former Partner Index member, warned that it may need to renegotiate its debt to avoid a default. The company is selling its Transaction Solutions unit for $300 million to a private investment group.