By Stephen Phillips
Computer services firm Keane Inc reported third-quarter income below Wall Street expectations, yesterday, on declining revenue from Y2K compliance projects which it warned would also drag fourth quarter results below par.
The Boston, Massachusetts-based company posted net income for the three months to September 30 of $19.4m, or 27 cents a share, excluding merger-related costs, compared to $29.2m, or 40 cents a share, for the same period last year. Analysts polled by First Call had on average projected the firm to earn 31 cents for the quarter. Including merger-related costs, net income was $27.2m. Keane acquired UK software services firm, Parallax Solutions Ltd, in May and Californian e-commerce consulting firm, Jamison/Gold LLC, in June – both for undisclosed sums.
Revenue was down 10.65% on last year at $255.6m as earnings from other business failed to offset shrinking returns from Y2K code conversion projects. The firm warned that this would continue to be a factor in fourth-quarter revenue which it now expects to be between $220m and $230m, or 15 to 18 cents a share, below the 28 cents touted on average by analysts surveyed by First Call. Chairman and CEO, John Keane said that the December quarter would be the firm’s most painful in its bid to plug declining Y2K revenues with new business due to the reluctance of clients to initiate new IT projects until after the first of the year. He also cited seasonally low utilization typical of the fourth quarter, in the pessimistic forecast.
The results represent a stumble for Keane, which as of last year was the sixth-fastest-growing firm in terms of revenue in the global top 50 of computer services firm and the fifth-most profitable based on profit margin. The firm is the 32nd-ranked service firm in the world based on fiscal-1998 global revenue. The firm’s profit margin for the September quarter declined from 9.5% for the year-ago period to 7.6%.
Nevertheless Keane trumpeted 18% growth in revenue from non-Y2K business. And revenue from the firm’s core systems design and integration business increased as a proportion of total revenue from 64% in the year-ago to 84%. The firm said it had cross-sold $1.2bn in other services to Y2K customers.
A spokesperson told ComputerWire that applications management outsourcing, in which firms turn over in-house management of their software applications to Keane, and e-commerce consulting would drive earnings next year. The source cited figures from industry watcher, Meta Group, which pinpoint applications management outsourcing as one of the fastest-growing areas of the outsourcing market, tipped to grow annually by 30% over the next three to five years. The firm said its so-called e-Solutions unit which encompasses internet and e-commerce consulting, together with the development and management of web-based applications for clients, had generated third-quarter revenue of around $26.25m. á
