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Fujitsu succumbs to big UK staff cuts

John O`Brien

Fujitsu succumbs to big UK staff cuts

Fujitsu has announced that it is cutting 1,200 UK jobs, equivalent to 10% of its UK workforce, making it the latest big IT services player in the UK market to succumb to a major redundancy programme. The cuts are expected across the business, including where there has become an overlap between existing Fujitsu operations and those of the recently integrated Fujitsu Siemens division.

Fujitsu expects UK revenue decline in FY10

Fujitsu blamed the decision on “lower than anticipated revenues” - clearly an admission of recent poor performance and a disappointing outlook for Fujitsu's UK operation. Such is the scale of the downturn that CEO Roger Gilbert is now predicting a revenue decline of 7% in the UK for the full-year 2010. This compares to growth of 4% to £1.65 billion in FY09.

However, despite the bleak news we remain convinced that Fujitsu's position is not symptomatic of a broader decline at the top end of the UK IT services market. Recent good progress from other major players such as IBM (£265 million - National Identity Scheme), HP/EDS (£1 billion - Aviva), Capgemini (12.7% growth in 1H09) and CSC (£385 million - National Identity Scheme) show that there is still life in the market for big deals in both the public and commercial sectors.

Staff cuts highlight run of bad form for Fujitsu

Fujitsu has undoubtedly had a run of bad form in the UK over the past 12 months, notably in its key market the UK public sector. And we suspect this will have been a factor in its decision to make cutbacks.

Firstly, in May 2008 the company's £896 million contract with the National Programme for IT (NPfIT) was terminated following failed contract renegotiations with managing body Connecting for Health (CfH).

Secondly, Fujitsu put a lot of time and investment into its bid for a role in the government's National Identity Scheme, for which it was shortlisted as one of three potential suppliers to upgrade the application and enrolment system for new biometric passports. This was seen as the number one target within Fujitsu's central government division, so the eventual award of the contract to CSC in mid-2009 will have been a major blow.

Both the NHS termination and the NIS loss will have badly dented Fujitsu's revenue and profit expectations for 2009, as well as its forward pipeline of business into 2010.

Commercial sector shows signs of life

Fujitsu generates around 30% of its UK IT services revenues from the commercial sector, so its reliance on this market for its success is limited. Nonetheless, Fujitsu has in fact performed better in the commercial sector over recent months. In August 2009, it signed a £27.5 million IT outsourcing contract with UK-based construction consultancy Davis Langdon LLP, covering service desk, applications and infrastructure support, desktop managed services, network management and storage and computer capacity across Europe and EMEA. Prior to that, in January the company signed a £142 million seven-year in-store IT support renewal with retailer Marks & Spencer that covers 600 stores in the UK and Ireland.

Fujitsu needs to build renewed momentum

Our view is that Fujitsu has faced distractions following the considerable degree of reorganisation and change it has gone through in the past 18 months. The loss of CEO David Courtley, followed by the return of Richard Christou, preceded the major integration of Fujitsu Siemens into the business and the appointment of Gilbert as CEO in April.

Fujitsu now needs to take stock and reassert itself in the market. This will require taking some hard decisions, such as the one it is now making, but also a real desire internally to emerge as more than the sum of its new parts - a better, more focused IT services provider. Reintroducing morale and momentum to the business is then going to be the first big test of Gilbert's tenure in charge.

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