Analysts warn: Beware of BearingPoint's problems

BearingPoint Inc. clients should monitor closely their engagements with the struggling IT services provider, to make sure its financial problems don't affect the quality of its work, analysts cautioned Monday.

Chief information officers (CIOs) and IT managers should review the terms and conditions of their contracts with BearingPoint and keep a close eye on how the company performs. They should immediately bring to BearingPoint's attention any problems and demand prompt corrections, analysts said.

"Whenever they're engaged with a provider that is in financial difficulties, CIOs and IT managers need to take an extra measure of caution and risk management to make sure they don't get the short end of the provider's problems," said Lorrie Scardino, a Gartner Inc. analyst.

This goes even for a company like BearingPoint, a provider whose clients tend to be loyal and which has a very good reputation for the quality of its work and its project management methodologies, Scardino said.

"Don't take a wait-and-see attitude. Stay on top of things," she said. "If there's something that seems unusual or a couple of things that together seem unusual that may affect the services you get, don't let it fester" and address it right away.

For companies considering hiring BearingPoint, the word is caution. "You need to be very careful about making the decision to go with them," said Andrew Efstathiou, a Yankee Group analyst.

BearingPoint on Thursday announced layoffs and a significant earnings restatement when it issued its fourth quarter financial report, in which it also missed expectations. The earnings report shocked Wall Street, and the stock at one point on Thursday lost over 30 percent of its value. It had closed at $10.31 on Wednesday before the earnings announcement Thursday morning. After falling as low as $6.75 on Thursday, it has regained ground, closing Monday at $8.15.

The McLean, Virginia-based consultancy and systems integrator on Thursday adjusted its accounting and erased from the books almost 25 percent of the net income it had reported in the fiscal year's first three quarters, from $44 million to $33.2 million. The restatement shaved $0.05 per share from the company's first three quarters, to $0.19. The company also announced layoffs of between 250 and 275 staffers, from a total of about 16,000.

On top of that, the company badly missed fourth-quarter expectations, reporting earnings per share of $0.04 and gross revenue of $774.8 million, both way below consensus expectations from analysts polled by Thomson First Call of $0.15 and $829.6 million, respectively. BearingPoint blamed the shortfall on lower-than-expected sales in Europe, the Middle East and Africa.

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