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Follow UsCyntia Barrera Diaz
NEW YORK: With investment capital drying up, stock prices collapsing and
established consulting players eating their lunch, the future of independent
Internet consulting firms has never been bleaker. Members of this once hot
sector, such as marchFIRST, Viant, Razorfish and Scient, have been cutting jobs
and closing offices as their stock prices continue to take a nosedive.
The best hope for some may be as bargain-basement takeovers, analysts said.
"I think what you are going to see is bigger full-line companies getting in
the area, now that they can buy assets for pennies on the dollar," said
Prudential Securities’ analyst Jim Dougherty.
"Now that there have been so many layoffs, keeping skilled staff is not
nearly as big a problem as it was an year ago. The major advertising firms are
going to be in this game one way or another," he said. In the latest
example of the sector's woes, marchFIRST agreed on Friday to sell about
two-thirds of its business and lay off 1,700 workers, or about 30 per cent of
its staff. Its shares, which resumed trading on Monday after a three-day halt,
fell 33.3 per cent to close at 3/32, over 99 per cent below its year high of
$35-1/2.
The sale takes place a year after the $5.6 billion deal between Whittman-Hart
Inc., a systems integrator, and the USWeb/CKS consultancy that led to the
creation of marchFIRST. "The expertise that these guys had, quickly became
a commodity," said Wit SoundView analyst David Mahoney, commenting on the
waning of Internet consultancies.
"They were looking at buying or acquiring the customers and were working
on much smaller point projects, less on the strategic side." MarchFIRST was
the last to join the list of Internet consultancies that have recently taken
drastic measures in an effort to keep their businesses running.
Viant Corp. announced last week that it was cutting its staff by 38 per cent
and warned of steeper-than-expected losses in the first quarter. The company's
shares fell 7.5 per cent to close at $2-5/16, down 96 per cent from its Dec 1999
all-time high of $63-9/16. Three weeks ago, Razorfish Inc. announced more
job-cuts under a ‘voluntary termination’ scheme for its employees in London,
Boston and San Francisco offices. Its shares finished at 15/32 on Monday, just a
fraction of its Feb 2000, high of $56-15/16.
In the first week of March, Sapient Corp. of Cambridge, Massachusetts,
changed its first quarter view to a loss per share instead of a profit, axed its
work force by 20 per cent and closed its Sydney, Australia office. Sapient's
shares closed at $7-9/16 on Monday, slightly above its year low of $6-15/16 and
way below its 52-week high of $74-1/2.
In December, Scient Corp. announced it was cutting 460 jobs and closing two
offices in California and Texas. Scient dropped 16 per cent on Monday to close
at $1-21/32, off 98 per cent from its all-time high of $133-3/4 set on March,
last. On Friday, shares of Scient rose 12 per cent on news computer giant
Hewlett-Packard Co. may be weighing purchasing the San Francisco-based firm.
As upstart Internet firms failed to deliver good financial results and the US
economy slowed, technology firms of all sizes began to collapse. For Internet
consultancies, which advise businesses on how to develop their Web strategies,
the technology meltdown resulted in a thinner client base and a weaker bottom
line.
Analysts said that big consultancies - Cap Gemini Ernst & Young, IBM
Global Services, Computer Sciences Corp., Accenture and PricewaterhouseCoopers -
could be among the ones pursuing the troubled Internet firms' most precious
asset: its people.
"When you talk about a consulting business you are talking about buying
reputation and people and hopefully customers. Obviously we've seen the customer
bases dry up but the IT departments at a lot of corporations are trying to bring
IT back in the house. They are doing some hiring," Mahoney said.