KPMG Reports 1Q Loss, Deal With MercatorKPMG Reports 1Q Loss, Deal With Mercator

KPMG Consulting Inc. Thursday launched a systems integration partnership with Mercator Software Inc. in an effort to bolster sagging areas of its business. The service provider earlier this week reported a net loss of $57.6 million on revenue of $608.9 million for its first fiscal quarter for 2002, ended Sept. 30. That's a far cry from its $20.5 million in earnings on revenue of $679.4 million from the same quarter a year ago.

Much of the first-quarter loss can be attributed to a change in accounting practices. KPMG has adopted the Statement of Financial Accounting Standard (SFAS) No. 142, which eliminated goodwill amortization of the company's assets and resulted in an $80 million charge. Excluding this charge, operating earnings were $22.3 million for the quarter, still down from $33.2 million for the same quarter a year ago.

KPMG Consulting and Mercator will work together to provide banking, investment, and brokerage clients with services and software, particularly Mercator's Global Securities Solution, to help them take advantage of trade and settlement standards set by the Global Straight Through Processing Association. The association's objective is to accelerate the flow of cross-border trade information, reduce the number of failed cross-border trades, and mitigate the risks and costs of cross-border trade settlements.

Although the year started out promisingly for KPMG Consulting with a $2.3 billion initial public offering in February, it is dealing with the same effects from the slowdown in IT spending as other service providers, such as Accenture Ltd. and Perot Systems Corp. KPMG Consulting's public services and communication and content business units have doubled in growth over the past year, and it is hoping its deal with Mercator will revive its financial-services and high-technology business units, which have lagged to this point.

KPMG Consulting's challenges this year reflect spending trends in the IT market, says Dirk Godsey, a senior analyst at JP Morgan H&Q. "They depend on large, complex integration work, and they've been affected by the slowdown in spending," he says. Infrastructure service providers such as IBM Global Services and EDS, however, have seen an increase in their outsourcing businesses as customers look to cut IT overhead.