More layoffs at Internet services firms

Two more Internet services firms reported layoffs in efforts to reduce costs in a more competitive marketplace.

Scient Corp. said yesterday it laid off 460 employees -- 25% of its workforce -- and expected to post a loss for the third quarter. The San Francisco-based consulting firm also said it will close its offices in Silicon Valley and in Austin,Texas.

Meanwhile, Viant Corp. said today it was reducing its workforce by 125 people, including 99 consultants, and will restructure its business to focus on certain markets, including media and entertainment, financial services, energy, consumer goods/retail and technology. In a statement today, the Boston-based company said it expects to save approximately $18 million next year.

In a statement yesterday, Scient said its revenues for the quarter ending Dec. 31 would be approximately $80 million -- down from its original estimate of $112 million. Scient said it expected to post a loss of $13 million, or 16 cents per share. Analysts surveyed by First Call/Thomson Financial in Boston said they had expected the company to earn 8 cents a share for the third quarter.

Scient attributed the layoffs and expected revenue and earnings shortfalls to the slowdown in demand for its services from struggling dot-coms as well as large corporations. The company also said an increase in competition from traditional management consulting and IT services firms and a lack of urgency among Global 2000 companies to fund large electronic-business projects contributed to its financial problems.

Scient also said that the "broad-based economic slowdown had also caused many clients to tighten their technology budgets."

The company, however, said it's now on track to becoming profitable.

"The actions we are taking to reduce our costs are expected to generate savings of approximately $60 million in calendar year 2001," said Executive Vice President and Chief Financial Officer Bill Kurtz in a statement. "Our financial position remains strong and our cash balance should approximate $150 million at the end of the December quarter."

Scient spokesman Byers Watt said there has been speculation over whether there would be more layoffs, and added the company is hoping yesterday's layoffs will be a swift and decisive corrective action.

Albert Nekimken, an analyst at Input, a market research firm in Washington, said Scient's reasons for its financial problems were "just a smoke screen."

"It's not as if we're going into a recession," Nekimken said. "And while there is a slowdown in the demand pipeline by dot-coms, [it doesn't exist] with large enterprises."

Nekimken said the problem is that these large corporations are now choosing to do business with more traditional consulting companies, such as IBM or Plano, Texas-based Electronic Data Systems Corp.

"Eighteen months ago, these large firms were caught off guard and they weren't prepared to handle the [e-business] needs of their clients, so they went to Scient or Viant," Nekimken said. "But one year later, these traditional consulting companies came back roaring. They're ready and they have thousands of technical staff people and [a lot] of resources."

He said large enterprises are willing to spend money on e-business consulting services, they're just not willing to spend it on small companies like Scient, especially with companies like Dell Computer Corp., Cisco Systems Inc. and Oracle Corp. also moving into the industry.

"While we are seeing increased competition [from more traditional consulting firms], we still believe that the reason we needed to make changes was because of the broad-based economic slowdown, said Watt.

As for Scient's future, Nekimken said, it has to grow more slowly, take more cost-saving measures such as paying lower salaries and narrow its market focus.

William Loomis, an analyst at Legg Mason Wood Walker Inc. in Baltimore, said Scient is "between a rock and a hard place" especially since it is facing strong competition from similar companies, particularly on price.

Loomis said the challenge for Scient will be to continue cutting costs while trying to refocus the company, keep the best talent and expand the business.

And David Sturtz, an analyst at Credit Suisse First Boston in New York, said his firm believes Scient has a "monumental task ahead trying to wean itself from a steady diet of dot-coms to winning significant contracts from the Global 2000 companies."

Scient and Viant aren't the only Net consulting companies going through a rough period. Other Internet consulting firms, including MarchFirst Inc. in Chicago, Luminant Worldwide Corp. in Dallas, Xpedior Inc. in Chicago and iXL Enterprises in Atlanta have also had lower-than-expected third-quarter earnings, due in part to the curtailed e-business spending by cash-strapped dot-coms.

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