The unit has been extremely successful over the last couple of years, driven by the boom in SMS. However, SMS’ growth is slowing and the major network equipment players are moving into Logica’s space. On the plus side, the company has learned from the problems in the rest of the tech industry and is already implementing cost-cutting measures.
Logica has announced it expects a slowdown in growth in its mobile networks division.
UK IT consultancy Logica saw its share price fall by over 16% on Thursday morning, after it disclosed that sales growth was slowing in its mobile networks division. The division has done extremely well in recent years, predominantly due to Logica’s strong position in providing mobile operators with SMS solutions. However, the unit’s revenue growth in the year to June 2002 will be around 30%, compared with the 40% the markets had expected.
The slowdown does not come as a surprise. Text messaging is a trend that most major players in the mobile industry were slow to spot, leaving Logica and fellow UK consultancy CMG ahead of the network equipment players. At the same time, SMS’ growth has been immense. Datamonitor expects global SMS revenues this year to be $13.4 billion, compared with just $2.2 billion in 2000.
Neither of these conditions were ever going to hold. Vendors such as Nokia and Motorola aim to offer complete solutions covering operators’ entire infrastructure, handset and integration needs. They have now added SMS solutions to their portfolios, as well as preparing for SMS’ replacement services (EMS, which adds simple images and tunes to SMS and works on 2G devices; and MMS, which sends rich media messages and requires GPRS or 3G).
At the same time, uptake of SMS is slowing. The market is almost saturated – indeed, Datamonitor expects global SMS revenues will fall to $12.6 billion next year, as the product becomes commoditized. While EMS and MMS will boost the market to an extent, they will not keep growth at the levels that have been seen in the last two years.
In short, Logica is about to experience the same market saturation problems that other technology players have been dealing with over the last year. On the plus side, it will at least be able to learn from their experience. The company has already started implementing cost-cutting measures.