Motorola and Cap Gemini axe total of 10,000 workers
Friday 28 June 2002
The telecoms and technology industries were dealt another dose of bad news yesterday as Motorola and Cap Gemini Ernst & Young cut almost 10,000 jobs between them.
The US mobile phone maker said it was cutting another 7,000 positions, or 7 per cent of its workforce, in a move that will cost it around $1.9bn (£1.2bn).
The blow came as the company unveiled an extra $1.6bn of charges, mainly to cover the fall in value of investments and assets, boosting total restructuring costs to $3.5bn.
In Europe, the computer consultancy Cap Gemini said it was cutting 2,500 more jobs in its latest round of restructuring to try to cope with a slump in demand.
The Paris-based company, which axed 5,400 jobs or 9 per cent of its workforce last year, said there would be just 250 fresh job losses in the UK, with most redundancies expected on the Continent and the US.
The moves come just a day after the telecoms and technology sectors were rocked to their core by the accounting bombshell dropped by the US telecoms carrier WorldCom.
Motorola, which had already trimmed its workforce back to around 100,000 from 150,000, said its restructuring signalled a return to the pre-dot.com era. "This comprehensive restructuring purposefully returns Motorola to approximately its mid-1990s size, the era prior to the excesses of the telecom and dot.com booms," said Christopher Galvin, Motorola's chairman and chief executive.
The fresh 7,000 job cuts, the company said, would fall across all its operations and would save it in the order of $100m this year and $700m a year going forward.
But Motorola sweetened the pill by reaffirming the financial guidance it gave earlier this month for the second quarter of the year. Sales for the three-month-period, it said, would "meet or slightly exceed" $6.4bn.
It also reaffirmed its guidance for the whole of 2002, saying it expected to show a profit in the third and fourth quarters as well as for the year, excluding special items. It predicts sales will fall between 5 per cent and 10 per cent this year.
David Devonshire, finance director, said the company had "substantial financial flexibility" and expected to end the second quarter of the year with around $6bn of cash.
The restructuring at Cap Gemini Ernst & Young, meanwhile, is part of the consultancy's ongoing battle to cut costs and raise operating margins. "Cap Gemini does not want to wait for a hypothetical market recovery. The goal is to create the most flexible structure," said Paul Hermelin, chief executive.
He expects the job cuts will lead to savings of 90m euros (£58m) this year and €230m in 2003. The company will try to find alternative positions for another 3,000 workers.
The new reduction in headcount is a part of an attempt to raise Cap Gemini's operating margin by between seven and eight points by 2004, Mr Hermelin said.
Cap Gemini, which was formed in February 2000 when Cap acquired the consulting business of Ernst & Young, has been under pressure to further slash costs to address the fall in demand for IT services. The company has also been criticised for not cutting back on staff as quickly as rivals such as Accenture.
The group dubbed its new profit drive "Leap", standing for "Leadership Expansion and Portfolio and Productivity Management". The new strategy will involve dividing the group's organisational structure in its three main markets – consulting, IT and outsourcing.
Mr Hermelin also repeated a previous forecast that revenue would stabilise from the second quarter. First-quarter sales fell 15.3 per cent to €1.87bn year-on-year.
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