Cap Gemini to cut 3,000 jobs as IT spend slides

Cap Gemini Ernst & Young, Europe's largest IT consultancy, could lay off nearly 3,000 people as a result of the continuing rout in the technology market.

The company is expected to announce the cuts within a month, in an effort to counter a fall in revenues and margins.

Already, the company has laid-off 8,900 people in less than two years.

The IT services sector has been particularly hard hit by the down turn in the economy as large companies have reduced their spend on new computer systems.

The revelation last week that Logica and CMG are planning to merge – to create Europe's third-largest IT services company – is widely viewed as a defensive move against further falls in the market. The talks, which are at an early stage, are also expected to lead to significant job losses.

At CGE&Y, the job losses will focus on around 3,000 people who, the company said earlier this year, would be moved to sales positions.

CGE&Y refused to comment, but investment bank Goldman Sachs estimated that only 250 of these people would cling on to their jobs as a result of the cuts.

In a new report on CGE&Y, the bank said that the redundancies would save the company €110-150m (£70-95m) a year, but would lead to a one-off €183m charge to cover payments such as redundancy.

However, this is necessary to cover falling revenues, which Goldman Sachs believes will dip by 5.5 per cent to €3.5bn for the second half of 2002. The investment bank estimates that CGE&Y will make a £279m loss before tax for 2002.

It is unclear in which countries the job cuts will be made. But one well-placed source said that France and the UK would be the hardest hit. CGE&Y employs around 55,000 people worldwide with 7,000 people in the UK.

The company was formed in 2000 through the merger of IT consultant Cap Gemini and the consulting division of accountancy firm Ernst & Young's. The deal was struck shortly after the peak of the technology bubble and the enlarged company has spent much of its time battling against US giants such as IBM and EDS in a declining market.

There have also been persistent rumours of problems integrating the two companies.