Billing software provider Amdocs cut its revenue forecasts for the year and confirmed that it intends to slash approximately four percent of its work force amid slower demand for its products.
Amdocs said Thursday it expects revenue in fiscal 2007 to be between $2.83 billion and $2.91b., down from its previous guidance in the $2.89b. and $2.97b. range.
"We continue to see demand for our products and services as major service providers around the world continue to embark on transformation and convergence projects, but not at the same pace that we had expected," Amdocs CEO Dov Baharav said ahead of next Wednesday's first-quarter earnings release. "As a result, we feel it prudent to slightly update our revenue growth estimates for fiscal 2007."
The company, nevertheless, said it expects to achieve its previously stated revenue guidance of $690 million for the first quarter.
The announcement came shortly after a spokesperson for Amdocs confirmed reports that the company plans to cut 600 to 700 of its 16,000 workers in 2007. The move resulted from an annual employee evaluation process after adjusting its payroll according to the scope of the projects that it is involved in, the spokesperson said. The cuts will be spread globally and will also affect its Israel operation.
With its headquarters in St Louis, Mo., Israeli-founded Amdocs maintains much of its research and development activities in Ra'anana.
Responding to the news, analysts at investment house JP Morgan downgraded their rating on the company to "neutral" from "overweight."
"The stock is up 36% over the last 12 months compared to only 6% for the Nasdaq, so even though the cut to revenue is not big, we think it will have a meaningful impact on the stock and keep it from outperforming from these levels," they told clients. The firm has a $39.33 target price for the shares, which dropped 10% to trade at $35.32 Thursday morning on the New York Stock Exchange.
Roni Biron, an analyst at Oscar Gruss & Son, said the announcement certainly sends a negative signal to the market that Amdocs was not moving ahead as fast as they expected on certain projects in which it was involved.
Biron added, however, that before signaling a downward cycle on its spending environment, much depended on Wednesday's earnings release.
"I would like to wait and see a few things next week particularly what the company's backlog situation is, what the source of the weakness is and what it is going to do to align expenses with revenues," Biron told The Jerusalem Post.
The main negative signal, he said, was coming from its work with US telecommunications company Sprint Nextel, which has been losing subscribers and may affect Amdocs.
Despite this, the company has been aggressive in its expansion activities, making three strategic acquisitions in 2006 and increasing its employee count in the second half of the year alone by 4,500, of which 600 were in Israel .
Last week, Amdocs started 2007 in the same spirit, acquiring Hod Hasharon-based SigValue Technologies for $54m., aiming to strengthen its sales in emerging markets in Eastern Europe, Africa, Latin America and Asia.
"Amdocs is pretty much focused on rationalizing the entire organization after all the acquisitions they made trying to realize efficiencies," Biron said. "Amdocs is a very large company and is involved in many large projects and you will always have issues in some projects with layoffs in some and recruitment in others."