- The Washington Times - Monday, November 12, 2001

Like a child separating from its parents, KPMG Consulting Inc., of McLean, is trying to come into its own as a publicly traded company after separating from parent company KPMG LLP, of Montvale, N.J.

KPMG Consulting specializes in systems integration, networking, and Web design and building. Its main clients are technology firms. The already sinking economy, exacerbated by the September 11 attacks, has caused tech firms to bleed money, and many have chosen not to spend on consulting firms.

Business prospects will be hard for a consulting firm whose clients are also being hit hard by a weakened economy, says Prakash Parthasarathy.

"A lot of CEOs have cut back on their discretionary spending. They've cut back on contracts," he said. "They've seen a big decline in the amount of work the [chief information officer] has been given."

Its 52-week high of $24.25 came on Feb. 8, when it made its initial public offering. But the stock soon slid downward, reaching a low of $9.11 on Sept. 27. Though the stock price has climbed upward since that time, "it's been trading sideways," hovering around $12 since the beginning of September, said Mr. Parthasarathy, an analyst with Banc of America Securities in San Francisco. The stock closed at $13.87 on Friday.

KPMG Consulting posted a net loss of $57.6 million (36 cents per share) for the first quarter ended Sept. 30. Last year at this time, the company made $4.7 million (23 cents). In October, it also cut 3 percent of its work force, or 400 jobs, as a result of lagging revenues.

The company had previously laid off about 500 workers last April. More layoffs may be on the horizon, Bill Loomis, an analyst with Legg Mason Wood Walker in Baltimore, predicts.

"KPMG Consulting and other companies say they expect a slowdown, so you'd think they've laid off what they needed to," Mr. Loomis said. "I do see more layoffs in the future, but most have already been done."

He also says it may take some time before KPMG Consulting's stock swings upward again.

"The next big spending cycle on systems integration and enterprise software won't happen for another 18 months," he said.

Both Mr. Loomis and Mr. Parthasarathy say KPMG Consulting's management is strong, and both have "buy" ratings on the company's stock.

"They've definitely managed to insulate their business as much as possible," Mr. Parthasarathy said, but he feels management should be more aggressive in seeking out contracts.

"Most of the contracts they have are short-term, and about 90 percent of the business they do comes from the U.S.," he said. "They don't have a geographically diverse business model."

KPMG Consulting is happy with its current business model, says Robert C. Lamb, executive vice president and chief financial officer for the company.

"Some companies are getting into outsourcing, and that requires tremendous capital and time. That line of business has a lower percentage of profit margins," he said. "Focusing on our business model will make us successful."

Mr. Lamb says that KPMG Consulting is focusing on creating more KPMG Consulting firms worldwide.


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