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CSC Stock Dives After Company Cuts Forecast 60%

Technology: El Segundo firm says it will lay off 700 to 900 employees worldwide as demand for computer services declines.

March 17, 2001|From Times Staff and Wire Reports

Slumping demand for technology and computer services forced Computer Sciences Corp. on Friday to slash its profit forecast 60% and announce as many as 900 layoffs, sending the company's shares tumbling to a three-year low.

CSC's stock plunged 40%, or $21.40, to $32.70 on the New York Stock Exchange. The downturn erased about $3.64 billion in market value for the El Segundo computer services firm.

The company blamed a sharp decline in demand for consulting and systems integration services, lower sales of health-care software licenses and higher costs for a few fixed-price projects.

"Everyone is assuming it gets worse for the next couple of quarters," said Merrill Lynch & Co. analyst Stephen McClellan, who lowered his rating on Computer Sciences and its rivals.

Computer Sciences now expects to earn 35 cents to 37 cents a share, before special items, in its fiscal fourth quarter ending March 30. It had been forecast to earn 92 cents, the average estimate of analysts polled by First Call/Thomson Financial. CSC earned 84 cents per share in the same period a year earlier.

The company's clients range from the Internal Revenue Service to Nortel Networks Corp. CSC has helped the royal family of Saudi Arabia set up a computer system to track the millions of Muslims who make pilgrimages to Mecca every year, and it is helping San Diego County digitize many government services.

To trim costs, Computer Sciences said it will cut its staff by 700 to 900 workers, about 1% of the company's 68,000 employees worldwide. A CSC spokesman said the layoffs will be spread throughout the company, not concentrated at the company's Southern California headquarters.

CSC will take a restructuring charge of $100 million to $150 million in the fourth quarter. It may take an additional charge related to its acquisition of Mynd Corp. last year for $816 million.

CSC said its revenue will grow 13% to 15% during the coming fiscal year, with earnings per share at $2.50 to $2.60. Analysts had forecast earnings per share of $3.24.

"I've been covering this company since 1994, and this is the first time I've seen them miss like this," said Greg Gieber, an analyst at A.G. Edwards who lowered his rating to "maintain" from "accumulate."

CSC's announcement also pulled down shares of its main competitors, IBM Corp. and Electronic Data Systems Corp. On the New York Stock Exchange, IBM shares fell $5.46 to close at $90.10, and Electronic Data lost $3.25 to close at $55.25.

It was the latest in a series of earnings warnings from tech firms, including Compaq Computer Corp., Oracle Corp., Gateway Inc., Dell Computer Corp. and Cisco Systems Inc.

CSC earned $403 million on $9.4 billion in sales in its 2000 fiscal year.

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