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John Moore  
BearingPoint Still Recovering Despite Setback
By John Moore, Ziff Davis Internet


BearingPoint Inc. will likely miss a key milestone in the company's months-long overhaul, but the integrator's chief executive officer said he expects the company to turn a profit in 2006.

BearingPoint on Tuesday called it "unlikely" that the company will complete its financial statements for 2004 by the end of October, which had been the objective. BearingPoint provided no information on when it will complete the statements. Problems with internal financial systems first disclosed last November prompted an audit that remains under way.

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By late Tuesday afternoon, the company's shares fell about 7 percent to $7.14.

Harry You, who became BearingPoint's CEO in March, has been working to right the company's problems, which include turnover and a high cost of sales among other issues. You cited progress in his campaign during a meeting with analysts Tuesday in New York.

He predicted a return to profitability in 2006. The company released guidance of $3.5 billion to $3.7 billion in net revenue next year and $180 million to $250 million in operating income.

To get there, You emphasized the need to pursue higher-margin projects, an objective he outlined earlier this year. The company's compensation program for managing directors now is based on project profit margins as opposed to consultant utilization rates, which had been the primary metric.

You also noted that BearingPoint is focusing on solution sets in growth areas. He cited the example of a "digital oil field" solution that the company will bring to market in conjunction with Halliburton and Honeywell. In addition, BearingPoint will target electronic medical records, which he described as a market worth "tens of billions" of dollars going forward.

To sharpen focus and reduce costs, BearingPoint has reduced the number of industries it focuses on from five to three and consolidated or eliminated 38 percent of the market sectors within those industries. The company's three verticals are financial services; public services, which include government and health care; and commercial services, which cover areas such as consumer packaged goods and oil and gas.

BearingPoint also has moved to trim its client roster, pruning small or unprofitable accounts. The company plans to exit some countries in which it has practices.

All told, BearingPoint expects to achieve cost savings of $200 million to $300 million over the next 18 to 24 months, according to You.

As for attrition, the rate of managing director turnover declined from 17 percent in the first quarter to 15 percent in the third quarter. The company's global attrition rate, however, has increased to 28 percent from 26 percent during that time span.

You called that attrition rate "not optimal for us or anyone else."

BearingPoint began implementing employee retention programs in June.

Next Page: Roundarch decides to go it alone.

     
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