Cap Gemini 'needs to fire workers'

LONDON, England (CNN) -- Cap Gemini Ernst & Young, Europe's largest computer services company, needs to fire more than 5,000 workers to meet earnings estimates, analysts said.

Investment bank Merrill Lynch told its clients to "sell" the stock, sending Cap Gemini's (PCAP) stock diving more than 10 percent to 42.60 euros in early Paris trading on Friday. It also set a price target for the stock of 36 euros.

Merrill Lynch said it decided to lower its earnings per share estimate to 0.07 euros and 0.17 euros for 2002 and 2003 respectively, from 1.24 euros and 2 euros, because the computer consulting and integration market remains challenging.

MORE STORIES • Cap Gemini slashes jobs  • Cap Gemini profit rises  • Terror attack whacks Cap Gemini  • Cap Gemini cuts more jobs

Cap Gemini, like its rivals, has been troubled by a decline in technology spending as many customers choose to control costs as the industry attempts to rise out of a global economic downturn that struck in the last half of 2001.

"We are now forecasting revenue to be down sequentially in Q2 (second quarter), at best flat sequentially in Q3 and Q4, and flat again in 2003," the bank said.

"In such a scenario, we feel that CGEY's cost base is inadequate. It would lead to an operating loss of 24 million euros in 2002 and an operating profit of only 22 million in 2003.

"We believe the company would need to cut more than 5,000 people (about 10 percent of workforce) to reach the IBES consensus EPS estimate of 2.40 euros in 2003."

Cap Gemini, which is heavily exposed to the slowdown in the United States since it acquired consulting firm Ernst & Young two years ago, announced 2,500 job losses in December, taking the total for the year to 5,400, in an effort to save some 800 million euros ($715.6 million) annually.

Cap Gemini, which offers companies everything from computer hardware and software packages to management consultants, declined to comment on the brokers research.