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IT services warning: Rough sailing ahead

If they’re not already kaput, the days of open-ended IT consulting engagements soon will be.

Unisys, a big IT consultancy and integrator and also a tech vendor, kicked off the holiday season on a bleak note. Last week Unisys said it would cut 1,300 jobs, or 4.3% of its employees; would consolidate plants; and stop contributing to employees’ 401(k) programs.  The matching contributions, it said, cost the company $50 million annually.

Why the cuts? For its most recent quarter, Unisys loss hit $34.7 million or about 10 cents per share.  Now, Unisys is not solely in the IT services/consulting business. It also continues to build and sell servers and other hardware.

The company’s statement was vague about where the cuts would come, but you probably wouldn’t lose money betting that even the largest of customers are balking at big, open-ended services engagements. When even big Wall Street law firms are gutting bonuses and maybe even thinking about cutting their hourly rates, you know something’s up and buyers are very grumpy about spending big bucks on projects that may end up not helping their bottom line.

In an exception that may prove the rule, services giant Accenture last week reported profits rose 17% from the year ago period to $593 million for its first fiscal quarter ending November 30, 2008. Earnings per share were 74 cents vs. the 60 cents analysts had forecast. But, Accenture revised its forecasts downward citing currency changes and other factors. The company said it expected new bookings to come in between $24 billion to $27 billion for its entire year, down from the previous expectations of $26 billion to $29 billion.  And it expects EPS for the year to come in between $2.78 and $2.85 vs. the $2.85 to $2.93 it had previously forecast.

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