IT services and software group Logica Plc is cutting 700 jobs, due to deteriorating sales in its mobile networks division. The company is also closing offices in Japan, the UK and Ireland, and will take a one-time charge of £34 million with the hope of producing annual cost savings of £40 million.
The company said that in the second half of its fiscal year to June 30, 2002, sales in the mobile networks unit will be substantially below the £161.7 million achieved in the first half, and will only break even on an operating level. About 400 of the job losses will be in the mobile unit.
A key problem for the company is the disappointing uptake of its multimedia-messaging infrastructure systems, which process enhanced graphic and audio files sent between next-generation mobile phones. The company also said that SMS traffic has grown at a slower rate in Japan, Europe and Asia.
There are also doubts as to whether Logica can compete in MMS with mobile systems vendors such as Ericsson and Nokia. These companies are taking a greater interest in MMS, and are expected to use their end-to-end provisioning capability, which includes provision of new terminals, to force out their smaller specialist rivals.
Despite these setbacks, the company’s IT services will report a single-digit growth in the year to June 2002. The company still enjoys growth in outsourcing projects, and also has one of the healthiest balance sheets of the major European IT services providers, with £90.7 million cash reserves at the end of 2001.