Cap Gemini cuts 5,500 jobs

Cap Gemini: Can it practice what it preaches?

Beleaguered consultancy Cap Gemini Ernst & Young is to axe a further 5,500 jobs, as it attempts to stem a slump in demand in its core tech market.

The French-based firm, Europe's largest computer consultancy, said the cuts, equivalent to 10% of the workforce, represented a response to the continued tech downturn.

"Cap Gemini does not want to wait for a hypothetical market recovery," chief executive Paul Hermelin said.

"Today we are showing our determination to adjust for the short and long-term."

The job losses, which follow 5,400 posts cuts last year, will begin with the axing of 2,500 staff in telecoms and financial service divisions, the firm said.

A further 3,000 posts, mainly in back-office functions, will go by January.

Analyst's reaction

While Cap Gemini profited from the telecoms boom in the late 1990s, the firm has suffered in a downturn which has seen clients cut back on spending on computers systems and consulting services.

And despite job losses of recent months, the company is lagging behind rivals in trimming its payroll, some analysts believe.

Merrill Lynch has estimated that Cap Gemini needs to make a further 5,000 job cuts are needed to protect margins.

Other observers warned that the cuts left Cap Gemini without the base to exploit an upturn.

"If you take out 2,500 jobs [this year], next year it will be more difficult to grow revenue," Alex Molloy at Lehman Brothers said.

On target

Mr Hermelin forecast on Thursday that Cap Gemini would revenues were stabilising, after dropping 15.3% in the first quarter of the year.

Investors reacted cautiously to the announcements, helping Cap Gemini stock close up 0.21% at 42.84 euros.