Analysts: Cambridge Tech a takeover target

Cambridge Technology Partners today posted first-quarter earnings that met Wall Street's revised estimates, though the company, which is in the process of restructuring, reported a one-time charge of up to $9 million to move and retrain employees.

The Cambridge, Massachusetts-based consulting and systems integration firm has struggled to change its business model to better compete. Today it posted first quarter revenues of $151.4 million vs. $142.2 million for the same period in 1998.

Cambridge reported earnings of $7.5 million, or 12 cents per share, compared with $12.5 million, or 20 cents per share for the year-ago quarter. Results met expectations of Wall Street analysts polled by First Call.

The company also said it will take a one-time charge of between $7 to $9 million in its second quarter to cover a "repositioning and retention" program intended to help the firm keep, retrain, and move employees. The company said the program stems from decreased demand for enterprise resource planning (ERP) services and growing demand for interactive and Web-based offerings.

Wall Street analysts have said they are worried that Cambridge--like many technology firms--is having a tough time holding on to IT talent in a highly competitive market as the company's expected growth and stock value have dropped. Cambridge has also struggled to shift to a business model focused on service lines instead of geographic location.

Last month, the firm warned that its first quarter earnings per share would range between 12 cents and 14 cents, far below the 24 cents expected by analysts.

Analysts revised their estimates to reflect revamped earnings expectations. Cambridge's stock is trading at 13.75 a share, down 5.58 percent.

"[Cambridge] is widely being looked at as a takeover candidate," said Wayne Segal, analyst at Credit Suisse First Boston, who noted that Cambridge's valuation has dropped significantly since it went public. Segal said the company's higher level managers are defecting and the firm is having a harder time than expected with its turnaround plan.

In a research note, Warburg Dillon Read analyst Moshe Katri said Cambridge's recovery will be "lengthy and painful" and its current valuation makes it a prime takeover candidate.

Potential suitors, he said, include product companies Compuware and Computer Associates, larger consulting giants including EDS, CSC, and IBM, or European consultancies such as Cap-Gemini, Logica, and Sema Group.

Katri said that privately held boutiques, such as Scient, Viant, and Inventa, are putting pressure on Cambridge and hurting the firm's revenue growth, which has topped more than 50 percent in recent quarters.

As managers leave CTP for other boutique start-ups, they're recruiting former colleagues, which creates another staffing problem for the firm, analysts said.

"There's been a high level of attrition with high level management," Segal said.

Cambridge downplayed analysts' talk.

"The company is committed to what it's doing and ignoring speculation," said Laura Zak, vice president of human resources at Cambridge.

Zak said the company is "keeping its head down" and retraining many of the 440 employees who now work within the enterprise resource planning (ERP) practice to move over to the interactive application unit, which is focused on connecting customers' Web storefronts to back end financial and order fulfillment systems, as well as the customer management practice, which is devoted to Web-based sales, services and marketing applications. The interactive practice is expected to grow 100 percent this year, according to Warburg Dillon Read.

Employee retraining, which will be done using a standard framework the company has already established, will take anywhere from two weeks to six months and will involve some employee relocation, Zak said.

In other news, the company is working to lure new talent as others move on. Cambridge announced today the hiring of four new managers who hail from Hewlett Packard, Digital Equipment, Siemens, and EDS, including Janet Beyers, vice president of alliances for North America; Geoffrey Sackman, vice president of human resources for North America; Thord Andersson, vice president, Northern Europe Region; and Paul Piebinga, vice president, Benelux Region.